HITESH KUMAR BINDAL,INDORE vs. THE DCIT CIRCLE 1(1), INDORE

These two appeals are filed by assessee assailing the two appeal-orders, both dated 09.09.2022 and both passed by learned Commissioner of Income-Tax, National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], which in turn arise out of assessment-orders dated 13.12.2018 and 14.12.2018 respectively for assessment years [“AY”] 2011-12 and 2012-13 passed by learned DCIT/ACIT-1(1), Indore [“Ld. AO”] u/s 147 read with section 143(3) of Income-tax Act, 1961 [“the Act”].

These appeals involve identical issue and the parties were represented by same Representatives; accordingly at the request of learned Hitesh Kumar Bindal v.DCIT, Circle 1(1),Indore & 352/Ind/2022 A.Ys 2011-12 & 2012-13 Representatives these cases were heard together and are being disposed by this common order for the sake of brevity and convenience.

The facts leading to these appeals are such that while filing returns of income of AY 2011-12 and 2012-13 as involved in these appeals, the assessee declared exempted long-term capital gain u/s 10(38) from sale of shares of M/s KCL Infra Projects Ltd. (KCLIPL) formerly known as M/s Kadam Construction Ltd. The cases of assessee were re-opened by revenue through notices u/s 148 and the assessment were ultimately made u/s 147 read with section 143(3) wherein the AO treated the shares of KCLIPL as what is called “penny stock” and capital gain declared by assessee therefrom as managed or non-genuine. Accordingly, the AO made addition u/s 68 amounting to Rs. 9,21,930/- and Rs. 19,42,723/- (equivalent to the full value of sale consideration received by assessee) in AY 2011-12 and AY 2012- 13 respectively. Aggrieved by action of AO, the assessee carried matter in first-appeal but could not succeed. Now, the assessee has come in next appeal before us.

Presently, the controversy to be adjudicated by us is whether or not the revenue is justified in treating the capital gain declared by assessee as non- genuine and thereby make addition u/s 68?

At the outset, we may briefly take note of the data of transactions resulting into the impugned capital gain. The assessee claims to have purchased 35,000 shares of KCLIPL through broker M/s Arihant Capital Markets Ltd. in the year 2007-08 for Rs. 17,57,769/-, the average cost per share was Rs. 50.22. Later those shares were split in the ratio of 1:5, thereby 35,000 shares became 1,75,000 shares thus reducing average cost to Rs. 10.04. Thereafter, as informed by Ld. AR, the assessee sold shares in tranches in four different assessment-years, namely 1,10,000 shares in AY 2010-11 (+) 13,820 shares in AY 2011-12 (+) 44,525 shares in AY 2012-13 (+) 6655 in AY 2018-19. The average sale price of shares sold in AY 2011-12 and 2012-13 under consideration was approx. Rs. 66.70 and Rs. 43.63 Page 2 of 12 Hitesh Kumar Bindal v.DCIT, Circle 1(1),Indore & 352/Ind/2022 A.Ys 2011-12 & 2012-13 respectively. Ld. AR informed that the capital gain declared by assessee in AY 2010-11 and 2018-19 have been accepted by department in proceedings u/s 143(1). The disputes have been created only in AY 2011-12 and 2012-13 for which these appeals are before us.

Ld. AR for the assessee made following arguments and claimed that the lower-authorities have wrongly treated the capital gain declared by assessee as non-genuine:

Per contra, Ld. DR for revenue made following contentions and claimed that the revenue has rightly treated the capital gain declared by as non- genuine:

In Rejoinder, Ld. AR made following submissions/contentions:

We have considered rival contentions of both sides and perused the orders of lower-authorities as also the documents placed in Paper-Book and copies of case-laws filed before us. On a careful consideration, we find that the assessee has produced all documents in the form of Contract notes of Page 8 of 12 Hitesh Kumar Bindal v.DCIT, Circle 1(1),Indore & 352/Ind/2022 A.Ys 2011-12 & 2012-13 purchase and sale, DP A/c and Bank Pass Books and none of those documents is disputed or rebutted by revenue. In fact, Ld. CIT(A) has himself mentioned in Para No. 5.6 of appeal-order “I have noted that the assessee feigns ignorance about the activities or finances or price manipulations in market of companies, as recorded by the AO. What assessee overlooks is that the existence of documentation in support of these transactions was not even disputed by the AO, and that real issue, in the backdrop of these inputs as discussed in assessment order, is on the genuineness of the transactions.” Then, we find that the shares were purchased and sold through recognized stock-exchange and not off-market. Next we find that the purchase price was paid through A/c payee cheques and the sale consideration was also received through A/c payee cheques; there is no payment or receipt in cash. Then, we find that immediately after purchase of shares, the assessee got those shares credited in De-mat A/c (there was some time-gap of 11 months which is suitably explained by Ld. AR). Notably, the assessee was holding share in De-mat A/c for as many as 10 years from purchase till last sale and this single factor is more than enough to dislodge any allegation of revenue on assessee’s transactions. Then, we also find that the assessee is having investment in other securities as well and it is not the case that the assessee has made a stray transaction of shares of KCLIPL only. Thus, there is a complete series of factors and evidences demonstrating the genuineness of assessee’s transactions and not a single of them has been disputed by revenue.

Now, we would like to deal with some more contentions put forward on behalf of revenue. In so far as the buyers of shares sold by assessee are concerned, we find merit in the submission of Ld. AR that the entire sale was made through platform of stock-exchange where nobody knows who is buyer. Further, the AO has not provided any details of enquiries directly undertaken by him from buyers through the process of section 133(6) and the AO’s noting in assessment-order came to the knowledge of assessee only after seeing the assessment-order. Same is the case of statement of Shri Mohan Page 9 of 12 Hitesh Kumar Bindal v.DCIT, Circle 1(1),Indore & 352/Ind/2022 A.Ys 2011-12 & 2012-13 Jhawar, director of KCLIPL, which were not provided or confronted to assessee. Since the enquiries from buyers u/s 133(6) and statement of Shri Mohan Jhawar are assessee-specific and heavily relied upon by AO in assessment-order, the AO was legally duty bound to provide opportunity to assessee before making them a basis to draw any conclusion. But then the AO has not done so which is against the settled judicial principle of “audi alteram partem”. Another contention is based on AO’s noting that the turnover and profit of KCLIPL from year 2000 to 2005 were negligible but we fail to understand how this noting is relevant to assessee’s case when the assessee has made first purchase transaction itself on 03.12.2007 which is much after year 2005. In fact, this factor goes in favour of assessee for the simple reason that the AO himself admitted that in the year 2005, there was a change in management of KCLIPL and by virtue of SEBI order dated 06.10.2005, Shri Mohan Jhawar and others were given management. In stock market, change in management is considered as a turn-around story and investors tend to invest money with the expectation of good prospectus. Therefore, purchase of shares by assessee in the year 2007 after change in management gives more credence to assessee’s transactions. Then, as far as price-rigging is concerned, the claim of assessee has a merit that he was neither aware nor a party to price rigging. Thus, the revenue’s contentions are devoid of any merit.

Now we would also like to deal with the decisions relied upon by Ld. DR. The first in the sequence is Sumar Poddar Vs. ITO (2019) 112 taxmann.com 330 (SC) which is a case in which asesssee’s SLP against decision of Hon’ble Delhi High Court was dismissed. The Hon’ble Delhi High Court, in that case, held the capital gain as non-genuine taking into account certain facts, namely (i) There was astronomical hike of 4910% in the price of share in a very short period of 5 months, (ii) The assessee did not make any other dealing of shares, and (iii) The broker through whom transactions were done, was not known to assessee. In next case of PCIT Vs. Swati Bajaj (2022) 139 taxmann.com 352 (Calcutta HC), the assessee purchased shares on Page 10 of 12 Hitesh Kumar Bindal v.DCIT, Circle 1(1),Indore & 352/Ind/2022 A.Ys 2011-12 & 2012-13 16.03.2012, de-matted on 29.12.2012 and sold just after completion of one year and few months when the investment in shares became eligible for claiming exemption u/s 10(38) with increase of almost 2823%. In Shyam Sunder Bajaj (2022) 145 taxmann.com 315 (Kolkata ITAT), the binding decision of jurisdictional High Court in Swati Bajaj (supra) was followed on admission of identical facts by counsels of parties (Para No. 6 of order). In Pooja Ajmani (2019) 106 taxmann.com 65 (Delhi ITAT), the assessee purchased shares on 13.09.2012, opened de-mat a/c on 15.01.2014, got shares credited therein and thereafter sold in the very next month. In Sanjay Kaul (2020) 114 taxmann.com 186 (Delhi ITAT), the assessee purchased shares on 05.05.2014/23.02.2014/25.03.2014 and sold within a short- period on 15.03.2015/15.02.2015/15.03.2015 and declared long- term/short-term loss and set off the same against other income. In Sandeep Bhargava (2019) 109 taxmann.com 174 (Delhi ITAT), the assessee made off- market purchase directly from the company and declared more than 100 times gain within a period of about 1 year. Thus, the vital facts of all these cases were highly glaring and demonstrated adversity in the first blush itself. But in the present case of assessee, the vital factors are such that (i) the purchase and sale both were done through stock-exchange, not off-market (ii) the payment and receipt of both purchase and sale considerations were through banking channel and not in cash, (iii) the assessee is a regular investor and holding other securities also, (iv) the shares were got dematerialized immediately and held in de-mat a/c thereafter, and (v) most importantly, the assessee has held shares for about a period of 10 years and sold in four assessment years in tranches. Thus, the vital factors of assessee’s case are totally different then the facts of decisions relied upon by Ld. DR. Therefore, the said decisions are not applicable to assessee’s case.

That brings us to conclude that the facts of present appeal, as is evident from foregoing discussion, do not reveal any problem or negativity. The revenue in such a situation cannot reply upon mere suspicious, conjecture, preponderance of probabilities or report of investigation wing of Page 11 of 12 Hitesh Kumar Bindal v.DCIT, Circle 1(1),Indore & 352/Ind/2022 A.Ys 2011-12 & 2012-13 department. In our considered view, there capital gain declared by assessee must be accepted as genuine and we do so. Accordingly, we delete the additions made by revenue-authorities. The assessee succeeds in these appeals.

Resultantly, these appeals of assessee are allowed.