AMISH MANUBHAI BRAHMBHATT ,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-5(2)(2), AHMEDABAD

This appeal is filed by the Assessee as against appellate order dated 22.09.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2012-13.

The brief facts of the case is that the assessee is an individual engaged in the business of share trading and income from other sources. For the Asst. Year 2012-13, the assessee filed his original Return of Income u/s. 139(1) on 31.08.2012 declaring total income of Rs.3,62,340/-. The assessment was reopened based on the information received from the Mumbai Investigation Directorate vide letter/mail dated 27.03.2019, a search and seizure action was carried out on Shri Naresh Jain and his associates throughout the country by DIT (inv.)-2, Mumbai on 19/03/2019 which concluded on 21/03/2019. The search action covered the syndicate of persons who were acting in collusion and executing managed transactions on the stock exchange thus generating bogus long- term capital gains/bogus short-term capital loss/bogus business loss entries for various beneficiaries. 32855 persons have been identified for A.Y. 2012-13, wherein Rs.1326,99,87,079/- worth of sale trades have been done on seven identified scrips which have been decisively proven as manipulated on the stock exchange by the syndicate of persons led by the operator Shri Naresh Jain. The scrip named Scan Steels Ltd. (511672) is one such scrip and the assessee has traded in the said scrip during the F.Y. 2011-12 relevant to the A.Y. 2012-13. The assessee has sold shares to the tune of Rs.13,56,587/-, which is nothing but a sham transaction. Further, it was found on verification of the system that the assessee had filed the return of income for the A.Y.2012-13 on 31/08/2012 declaring total income at Rs.3,62,340/-. The information received from the Investigation wing categorically stated that Shri Naresh Jain, has admitted on oath in his statement recorded u/s.132(4) that with the help of A.Y. 2012-13 Page No Amish Manubhai Brahmbhatt vs. ITO various people, he has manipulated the share prices of various scrip in order to provide bogus entries of Long-term capital gain, Short Term Capital Loss and business loss. In view of the above, it was evident that the assessee had not declared income, resulting in failure on the part of the assessee to disclose his income. Therefore, there was reason to believe that income has escaped assessment within the meaning of section 147 of the I.T. Act and such escaped income exceeded Rs.1,00,000/-.

In response, the assessee a return on 19.04.2019 declaring the very same total income of Rs.3,62,370/-. The assessee was issued a show cause notice on 28.11.2019 why not to make an addition of Rs.10,07,173/- on the transaction carried out in the scrip namely ‘ Scan Steel Ltd.”

The assessee replied that he has not been involved entering providing business and he has regularly engaged in share trading business doing the sales through registered brokers in the stock exchanges. In support of the same stock broker contract note share investments account, bank statement and various case laws treating the above sale of shares as business income. The above explanations was rejected and the Assessing Officer held that there is specific information that the assessee is involved in non-genuine and bogus capital gain obtained from the transactions of sale of shares of Scan Steel Ltd. and added the entire sale consideration of Rs.10,07,173/- as unexplained cash credit u/s. 68 of the Act.

On further appeal before Ld. CIT(A) following Calcutta High Court Judgment in the case of Swati Bajaj and Others confirmed the addition made by the Assessing Officer as unexplained credit at Rs.10,07,173/- and dismissed the assessee appeal.

Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:

We have heard the rival submissions and perused the materials available on record. It is undisputed fact that the assessee is in the business of trading of shares on various shares during the year. As it can be seen from the statement of trading of shares, the assessee purchased the so called penny stock share namely Scan Steel Ltd. (511672) was purchased by the assessee on 22.07.2011 namely 5579 shares @ Rs. 171.59 totaling 957300.05. It is very same set of shares were sold as intraday sale at Rs. 180.51 for a total consideration of Rs.1007092.06. Thus there is a profit of 49792 by way of intraday trade of this share namely Scan Steel Ltd. The assessee being a trader of share has done many other shares namely Reliance Capital, Reliance Infra and other shares. As it can be seen from the reasons recorded by the Assessing Officer, the assessee generated bogus long term capital gain/bogus short term capital loss/bogus business loss by selling the scrip namely Scan Steel Ltd. Thus the escaped income exceeded Rs. 1,00,000/-, A.Y. 2012-13 Page No Amish Manubhai Brahmbhatt vs. ITO whereas seen from the intraday sale of Scan Steel Ltd. by the assessee, there is a nominal profit of Rs.49792 only arrived by the assessee which is less than limitation of Rs. 1,00,000/- for reopening of assessment u/s. 147 of the Act. Further the reasons recorded for providing entries of long term capital gain, short term capital loss or business loss by the assessee. But none of the above three elements are found in the assessee’s case which is in intraday transaction whereby the nominal profit of Rs.49792 received by the assessee which is offered for taxation as his business income. Thus the very basis of reopening of assessment itself fails, therefore the reassessment made by the Assessing Officer has no legs to stand. In our considered view, the entire reassessment proceedings is liable to be quashed.

In the result, the appeal filed by the Assessee is hereby allowed.