TEJALBEN SAMIRKUMAR SHAH,AHMEDABAD vs. THE PR. CIT-1, AHMEDABAD
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Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned PCIT-1, Ahmedabad, arising in the matter of revision order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
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The only grievance of the assessee is that the Ld. PCIT erred in holding the Assessment Order framed u/s 143(3) of the Act, as erroneous in so far prejudicial to the interest of the revenue on account of non-verification.
The assessee in the present case has shown long term capital gain on the sale of shares of a company namely M/s Suchak Trading Ltd. amounting to Rs. 29,69,381/- which was claimed as exemption u/s 10(38) of the Act, and the same was allowed by the AO during the assessment proceedings carried out u/s 143(3) of the Act. However, the Ld. PCIT on examination of the assessment records found that the AO while allowing the exemption u/s 10(38) of the Act, have not considered/carried out certain inquiries as detailed below: 2.1 It has now come to notice that while passing the assessment order u/s 143(3) of the Act, the AO failed to take the cognizance of, inter-alia, the following facts, which are significant to examine the correctness and genuineness of the transactions entered into by the assessee in the scrip of M/s Suchak Trading Limited as discussed in para 2 above and the correctness of claim of exemption u/s 10(38) of the Act. (i) The persons involved in the syndicate of penny stock/accommodation entries, in their respective statements recorded by the Investigation Wing Kolkata, had categorically admitted that the scrip of M/s Suchak Trading Ltd. was utilized for facilitating accommodation entries to the desired beneficiaries. (ii) In this case, at the time of purchase, the value of the shares was very low and after making purchase by the assessee, the prices of the shares had gone astronomically high, without any commensurate financial results of the company orany other convincing reasons. (iii) The shares when sold by the assessee were allegedly purchased at high prices by accommodation entry providers/operators and there were no genuine/actual buyers. (iv) Trading in scrip "Suchak Trading Ltd." was suspended by the BSE due to abnormal behavior of share trading. 3.1 However, on inquiry by the Ld. PCIT, the assessee submitted that all the necessary details about impugned long term capital gain were filed during the assessment proceedings and the AO has duly applied his mind on such details. Likewise, one of the reasons for selecting the case under scrutiny was suspicious sale transaction in shares and further claim of exemption in the income tax return. Thus, it was contended by the assessee that the impugned assessment cannot be held as erroneous in so far prejudicial to the interest of the revenue on account of
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non-verification. However, the Ld. PCIT dis-agreed with the contention of the assessee and held as under: 7. In view of the facts discussed above, the contentions put forth by the assessee are not found to have worthwhile substance and none of the judgments relied upon by the assessee are found applicable in the present circumstances. It is reiterated that the Investigation Wing, Kolkata, after carrying out detailed investigation, brought the facts on record that the share prices of the scrip M/s Suchak Limited were manipulated artificially by a set of accommodation entry providers controlled by cartel of brokers and entry operators etc. with the sole intention to channelize the unaccounted money of the beneficiaries in their books under the garb of Long Term Capital Gains. Since the Assessing Officer did not carry out a detailed investigation to find and establish the device of money laundering in the present case under the garb of LTCG with the help of accommodation entry providers, the issue has been incorrectly decided by him due to lack of requisite inquiry. Since the AO has failed to conduct relevant enquiries, the order passed by him u/s 143(3) of the Act dated 22.12.2017 is found to have become erroneous insofar as prejudicial to the interest of revenue within the meaning of section 263 of the Act. 8. In the light of the aforementioned discussions and bearing in mind the entirety of the case, I am of the opinion that the assessment order passed by the A.O. 143(3) of the I.T. Act, 1961 on 22.12.2017 is erroneous insofar as prejudicial to the interest of the revenue, as discussed in preceding paras, since the order has been passed without making adequate examination of the aforesaid issues. By virtue of the powers vested in me u/s. 263 of the IT Act, I hereby set-aside the order passed u/s 143(3) of the I.T. Act, 1961 on 22.12.2017 and direct the Assessing Officer to pass a fresh assessment order after allowing adequate opportunities of being heard to the assessee, in accordance with the law following prescribed procedure and duly examining and investigating the aforementioned issue in the light of the above discussion. 4. Being aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 48 and contended that there was direct inquiry by the AO during the assessment proceedings in the notice issued u/s 142(1) of the Act, which is placed on pages 7 to 13 of the paper book. Likewise, the reply made by the assessee in response to such notice vide letter dated 08/12/2017 is placed on pages 14 to 17 of the paper book. Thus, it was contended by the Ld. AR that there was due application of mind by the AO while granting exemption u/s 10(38) of the Act. Therefore, the assessment cannot be held as erroneous in so far prejudicial to the interest of revenue.
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On the other hand, the Ld. DR contended that the AO should have made enquiries from the directors of the company and stock exchange which has not been done. The AO has relied merely on the submission of the assessee without conducting necessary enquiry from the parties. The ld. DR in view of the above vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the impugned order, we note that the case of the assessee was selected under complete scrutiny through CASS and one of the reasons was being suspicious sale transaction in sale of long-term capital gain shown in return (Penny Stock in ITS). Thereafter, the AO during the assessment proceedings has raised various inquiries about the exemption claimed with respect to long term capital gain. This fact can be verified from the question raised by the AO in the notice issued u/s 142(1) of the Act. The relevant extract of the notice is reproduced as under:
In pursuance of the above, you are requested to furnish the further following particulars/details/explanation: i. From the submission received, it is seen that you have earned Long Term Capital Gain on sale of scrip "Suchak Trading Ltd." and claimed the same as exempt U / s 10(38) of the I.T. Act. In this regard, please explain who looks after the, transaction with regard to shares during the concerned financial year and also last two years. ii. Please give the narration towards the expertise of yourself or the persons who is looking after the share transaction in your case. . Please give the details of shares/equities purchased during the FY 2011-12, FY 2012 - 13 FY 2013-14 and FY 2014-15 for investment purposes. Please explain the criteria and basis/reasons for purchasing these shares. iv. Please give the details of transactions of shares/ equities purchased during the F.Y. 2011-12, FY 2012-13, FY 2013-14 and FY 2014-15. Please also give the source for making such purchases along with copy of demat account for these three financial years. v. Please also give the details of shares/equities purchased offline during the F.Y. 2011-12, FY 2012-13, FY 2013-14 and FY 2014-15 along with complete name & address of the party selling the shares.
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vi. Please explain as whether any financial analysis was carried out on the financial performance of the companies particularly "Suchak Trading Ltd." while purchasing the shares of the said company. vil. Please narrate when the shares/equities purchased during the F.Y. 2011-12, FY 2012- 13, FY 2013-14 and FY 2014-15 were dematerialized and please submit the duplicate share certificate given for dematerilization. viii. Please explain whether assessee was keeping the track of share prices of the company whose shares were purchased by you offline during the FY 2012-13, FY 2013-14 and FY 2014-15 and if so what was the source of the said information. ix. Please give narrations to the circumstances for deciding to sell the shares of "Suchak Trading Ltd." which were purchased on 13.03.2012. X. As per investigation conducted by the department it has been unearthed that through brokers and sub-brokers have admitted their role in accommodation entry providing syndicate for the illegal business of bogus LTCG claim. It has revealed that the promoter of "Penny Stock" companies (also known as syndicate member), the share brokers & the entry operator who purchases the shares through paper companies by taking cash. They have also accepted that they receive cash commission from beneficiaries/key operators for being part of the syndicate. As per the documents impounded from the brokers and sub- brokers, suggest that they received huge cash commission. The investigation has revealed "Suchak Trading Ltd." are one of the companies involved wherein the share price has been rigged to accommodate the scandalized operation of bogus LTCG. As you have claimed the LTCG from the sale of shares of the said company, you are requested to offer your comment on the same and also as to why the sale of shares of the said company on which you are claiming exempt LTCG should not be treated as your transactions are pure sham transactions to enable claiming benefit of LTCG exemption u/s.10(38) of the Act. The transactions are the result of proper home work to suit to your interest for evading legitimate tax through the weapon exemption U / s 10(38) It is, therefore, requested to show cause as to why the share transactions as stated above should not be termed as sham / bogus transactions and the claim of exemption u/s. 10(38) of Rs31,37,301/ should not be rejected and Rs. Rs. 36,37,301/- be considered as your income for the A.Y. 2015-16. 3. You are requested to furnish the above details/documents on the next date of hearing fixed on 08.12.2017 at 12:30 PM. Please note that this is time barring assessment. No further opportunity shall be given. Failure to attend or comply this notice may attract penalty provisions u / s * 0.271(1)(b) of the I.T. Act and the assessment proceedings shall be finalized on the basis of the details available on record and on merits.
7.1 In response to the above notice, the assessee has made detailed reply which is placed on pages 14 to 17 of the paper book. The relevant extract of the submission is reproduced as under: Please refer to your notice dated 04th instant, the above named assessee pleased to furnish the particulars\details\explanations\evidences\accounts\\etc in continuation of details etc furnished at the time of hearing held on 20/06/2017 1. I had invested in shares of "Suchak Trading Limited". In fact, I had made an application in the prescribed form to allot the shares in an issue being lodged by the company.
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In India, people are investing in the shares. Most of them are not expertise in making said investment. There is no expert knowledge required in making investment more particularly when shares are applied to allot the same at par i.e. 10 /share 3. Please find the shares/equities purchased during FY:-2011-12 to FY:-2014-15 marked as exhibit-7.The shares are purchased by me with only motive to earn Long Term Capital Gain. I am not doing any business or trading activity. The fund is not blocked in Debtors and Stock. So with a view to earn profit out of my Investment, I am investing in purchase of shares. 4. Please find the source of making purchases of shares during FY:-2011-12 to FY:- 2014- 15 marked as exhibit-8. 5. I had not purchased any shares offline. There is no need to carry out any financial analysis when shares are purchases at par i.e. Rs.10 per share 7. Yes, my all shares purchased in demate mode. The share certificate (physical) of Suchak Trading Limited is already furnished vide exhibit-6 in my submission dated 20/6 / 2017 8. AS I said in para-5 above, I had not purchased any shares offline. The question is irrelevant. 9. The question is outside the ambit of Income Tax Act, 1961.It's one own look out and freedom is given by the constitution of India to arrange his/her own affairs. Why & when to purchase, why & when to sell is none of the business of Income Tax Department 10. There is no sham element in my transactions i.e. Purchase & Sales. No cash element is involved. At the time of purchases, money went to the coffer of the Suchak Trading Limited by an account payee cheque and sale proceeds are received by an account payee cheque from the authorized share broker. 11. Honourable The Mumbai Tribunal in the case of ITO v / s Arvind Kumar Jain (HUF) (Mum) (Trib.) dismissing the appeal of the revenue held that if the Demat Account and the Contract Notes show details of the share transactions and the AO has not proved the transaction to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income vide ITA No:4862|Mum | 2014 dated 18/09/2017(AY: 2005-06) 12. My contentions are as under:- • Share have been applied in the prescribed form on issue being lodged by the company. The shares have been demated and sold for which necessary bills have been issued. Shares have been sold through demate account and against the said sales payment has been received by an A/c payee cheque. From the details of ITD, PAN of all the persons who purchased shares sold by me is available. It means department is also accepting the purchase of shares (by different different persons)-sold by me
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Shares are sold by me after a period of 31 months of holding.
STT shares have been sold on recognized stock exchange on which STT have been paid, capital gain earned on such transactions shall be allowed u / s * 10(38) of the Act- a legitimate claim. 13. Provisions of the sec. 10(38) Any income arising on or after 01.10.2004 from the transfer of a Long Term Capital Asset being a equity shares in a company shall be exempt provided- Such equity shares are sold through recognized stock exchange. Such transaction is chargeable to Security Transaction Tax. I had fulfilled the conditions laid down in the section. Exemptions shall be allowed as per the provisions of the act. 14.I also draw your attention on the last page of your notice on para 2(x) you have requested to show cause as to why the share transactions as stated should not be termed as sham/bogus transactions and the claim of exemption u / s * 10(38) of Rs: 31,37,301/- should not be rejected and Rs: 36,37,301/- should be treated as your income for the AY / - 2015 - 16 From the above you differed the amount at two different points: In fact my LTCG of Rs: 31,37,301/- consists of the following scripts Rs: 29,69,381/- on sale of shares of Suchak Trading Limited. Rs: 1,67,920/- on sale of shares of Adani Ports Rs: 31,37,301/- Total 15. In conclusion, By no stretch of the imagination, my transactions of purchase & sales of shares can be termed as sham/bogus transactions. I am also furnishing here with an affidavit on oath marked as exhibit-9 confirming that no cash element is involved in purchase & sales of sale of my shares. Exemption u/s.10(38) shall be allowed as mentioned by me on para 13 subject to the fulfillment of two conditions laid down in the section which I had fulfilled. You cannot reject my legitimate claim and exemption u/s.10(38) has to be granted. Honourable The Jharkhand H.C in the case of CIT vs. Arunkumar Agrawal (HUF) (2012) 26 taxmann.com 113 deleted the addition made by AO. 7.2 Besides the above, the Ld.AR also drawn our attention on the office note attached with the assessment order placed on page 26 of the paper book. The relevant extract of the is reproduced as under: Page 26
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7.2 From the above details, there remains no ambiguity that the case of the assessee was verified by the AO during the assessment proceedings and thereafter the AO has taken a conscious view that such capital gain does not represent the bogus claim of the assessee. Thus, accordingly we hold that the assessment order cannot held as erroneous in so far prejudicial to the interest of the revenue on account of non-verification. In holding so, we draw support and guidance from the judgement of Hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.). The Hon’ble Court made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “12. ….. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. ——— From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
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Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”
7.3 In addition to the above, we also note that the AO while calculating the long-term capital gain, has taken one of the possible views and therefore the same cannot be held as erroneous and prejudicial to the interest of the revenue. In holding so, we draw support and guidance from the judgement of the Hon’ble Gujarat High Court in the case of CIT Vs. Kwality Steel Suppliers Complex reported in 395 ITR 1. The relevant extract of the order is reproduced as under: 9. It is clear from the above that where two view are possible and the Assessing Officer has taken one view and the CIT again revised the said order on the ground that he does not agree with the view taken by the Assessing Officer, in such circumstances the assessment order cannot be treated as an order erroneous or prejudical to the interest of the Revenue. 7.4 It is also relevant to refer the office note of the AO placed on page 26 of the paper book. The relevant extract is reproduced as under: The case has been selected for complete scrutiny under CASS with reason below: 1. Suspicious sale transaction in shares and exempt long term capital gains shown in return. As per penny stock ITA details, the assessee has dealt in scrip of Suchak trading Co. During the course of asst. Proceedings, the relevant details and and documents and explanation to show cause notice called for which have been submitted by the assessee. The same have carefully gone through. On verification, it is seen that the assessee has purchased the shares through IPO and banking channel and sold the same after a period of about 31 months of holding. Thus, in this case, no cash purchase or offline transaction is shown to be involved. Therefore, the modus operandi as involved in this case. The assesee has filed all relevant details and documentary evidences such as copy of application made for purchase of shares, share certificates, bank a/c. statements showing cheque payment etc.the same are verified and placed on record. No adverse inference is, therefore, drawn considering all these aspects. 7.5 In view of the above, and after detailed discussion as discussed above, we are not convinced with the findings of the Ld. PCIT, and accordingly we quash the same. There was proper application of mind of the AO while framing the assessment in the hands of the assessee. As such the order passed by the Ld.
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PCIT u/s 263 of the Act is not sustainable in the given facts and circumstances. Hence, the ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Court on 10/04/2024 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 10/04/2024 Manish
