VIJAY KANTILAL VORA,VADODARA vs. DCIT, CIRCLE-4(2)(1), VADODARA

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)- 4 Vadodara (hereinafter referred as “Ld. CIT(A)” dated 30.1.2018, relating to the assessment order passed by the Assessing Officer (hereinafter referred as “AO”) under section 144 r.w.s. 147 of the Income Tax Act, 1961(hereinafter referred as “the Act” for the assessment year2011-12.

The said addition was made after re-opening of the case, though the same was accepted during the original assessment order passed. The addition was made by rejecting off market transactions, though the records clearly shows that the transactions have taken place and all the documents as well as ROC records shows that the assessee is the owner of shares.

The assessee also filed following additional grounds of appeal before us: “The Ld. AO has erred in law and on facts in reopening the case of appellant invoking the provisions Section 147 of the Act. It is submitted that there is no escapement of income on the part of appellant, as the complete details of LTCG gain earned on sale of shares of KGN Industries were filed and, verified as well as scrutinized during the course of original assessment proceeding u/s 143(3) of the Act. On the facts and circumstances of the case, the whole reopening of assessment u/s 147 of the Act is bad in law and void- ab-initio. Therefore, the order passed by the A.O. u/s 144 r.w.s 147 of the Act deserves to be quashed and set aside.” Facts of the case:

The assessee filed his return of income 30-7-2011declaring the total income of Rs. 10,86,110/- mainly Salary being source of income. Subsequently notice was sent under section 148 of the Act and the assessment was completed u/s 144 r.w.s. 147 of the Act adding back the long-term capital gains of Rs. 2,09,01,660/- claimed as exempt u/s 10(38). The said addition was made u/s 68 of the Act.

During the course of assessment u/s 147 it was identified that the assessee had sold 85000 shares of KGN Industries Ltd. for the sum of Rs. 2,11,18,250/- These shares were purchased by the assessee on 8-8-1999 and the same were dematerialised on 15-4-2010 before sale in September 2010. The Assessing Officer (AO) noted that the purchase and sale is a fabricated transaction held as bogus. AO also recorded his observations as follows: [i] The financials of the penny stock KGN Industries Limited and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. The history of investment in shares made by the assessee also generally reveals that he has not been dealing in shares on a regular basis. [ii] The purchase of these shares were claimed to be through off market deals and not through stock exchanges and the shares were entered in DEMAT account subsequent to the purchase of shares. In this case, it was held in earlier paras that the purchase of shares is bogus. [iii] That even assuming the purchase as genuine [in this case it was held as bogus in earlier paras], the sales, given the high rates of such penny stock, with no real buyers, are bogus. The evidentiary value of payment of STT cannot make a non-genuine transaction, a genuine one. [iv] The scrip is a penny stock, purchased at a low price, which is over a period of time ramped up by operators acting in benami names or name lenders. The purchases are off market purchases, and not reported on exchange. [v] The purchases are in the physical form, and dematised only subsequently generally long after the purchase date, close to the date of sale. [vi] Also the manners in which the shares under considerations have been acquired and sold are not in accordance with the normal market practice. 5.1. Consequently, the AO treated the capital gains as unexplained cash credits under Section 68 of the Income Tax Act, 1961, and added the amount to the assessee’s income.

The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the addition made by the AO.

The documents filed before us reveal that as evidence of share purchase off-market in 1999 the assessee had filed share transfer form, evidencing purchase of shares of Royal Finance Ltd. from Standard Leasing & Finance Ltd. with stamp by the Registrar of Companies, Gujarat dated 5. 8.1999. Form No. 7C, in terms of section 108(1D) of the Companies Act, 1956, dated 26.3.2010 was also filed before us as evidence.

We have gone through the provisions of section 108(1D) of the Companies Act, 1956 and have noted that it provides for transfer of its shares to be registered only on the production of instrument of transfer and in sub-clause ( (A) , (1) (B) and (1) (C) , it provides time line for submitting transfer form to the company by the shareholder who acquired the shares on transfer. Section 108(1-D) deals with the situation where, to avoid hardship, the Government may, on an application made to it, extend the period mentioned in sub-clause (1) (A), (1) (B) and (1) (C) of the Companies Act, by such further time as it deems fit.

Therefore, what transpires is that Form No. 7C was filed by the assessee to register its name as shareholder on acquisition of shares in 1999, with KGN Ltd belatedly. The shares were acquired in 1999 and Form No. 7C has been filed in 2010 i.e. after ten years. We do not find any approval granted for this belated filing of the requisite transfer form. Also, we have noted that Vijay Kantilal Vora vs. DCIT Asst. Year : 2011-12

To prove the genuineness of purchase, only documentary evidence is not sufficient. It has to be supported by the evidence of consideration paid for such purchase. The counsel for the assessee could not provide the details of consideration paid. The trail of purchase has to be established by substantive evidence of entry in bank statement or receipt if paid in cash.

Ld. DR relied on the order of the lower authorities and reiterated that the matter is related to penny stock. Further, Ld. DR submitted that the period of holding of shares is not over ten years as alleged, but the purchase and sale of shares was made within a short period of time.

We have heard the submissions of both the parties. The counsel for the assessee contended that the transactions were genuine and furnished documents in support of the purchase and sale of shares. However, it was noted that the AO had not thoroughly verified the evidence pertaining to the purchase of shares.

Upon careful consideration of the facts and circumstances of the case and the submissions made, we are of the view that the matter requires further examination especially relating to purchase of the shares and its period of holding.

The counsel for the assessee has not pressed for the additional grounds of appeal hence dismissed.

In view of the above, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the Open Court on 30 May, 2024 at Ahmedabad.