Case Law Details
PCIT Vs Nikunj Dhanuka (Calcutta High Court)
The Calcutta High Court dismissed an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 against an order of the Income Tax Appellate Tribunal for the assessment year 2012-13.
The Revenue contended that the Tribunal had erred in deleting additions made under Sections 68 and 69C of the Act relating to alleged bogus long-term capital gains from penny stock transactions involving the scrip of VMS Industries Ltd. The Revenue also questioned the Tribunal’s decision regarding exemption claimed under Section 10(38) and alleged that the assessee had failed to establish the genuineness of the transactions.
Read SC Judgment in this case: SC Upholds Reassessment Quashing as No Exempt LTCG Was Claimed in Penny Stock
The Court noted that the Tribunal had allowed the assessee’s appeal after examining the factual background and finding that the information forming the basis for reopening the assessment under Section 147 was factually incorrect. The reopening was initiated on the premise that the assessee had claimed an exemption of Rs.90,95,000 under Section 10(38) arising from transactions in VMS Industries Ltd., based on information received from the Investigation Wing, Mumbai.
However, the Tribunal found that the assessee had actually disclosed long-term capital gains of Rs.41,98,896, after adjustment of long-term capital losses, and had claimed exemption only on that amount. The amount of Rs.90,95,000 referred to by the Assessing Officer was stated by the assessee to represent short-term capital gains of Rs.57,46,787, which had already been offered to tax in the original proceedings. The Court further observed that there was no material on record indicating that the assessee had earned long-term capital gains from shares of VMS Industries Ltd. as alleged by the Assessing Officer.
Holding that the reopening was founded on incorrect factual assumptions, the High Court concluded that when no exemption under Section 10(38) had been claimed in respect of the alleged transactions, the question of reopening did not arise. Finding no substantial question of law arising from the Tribunal’s order, the Court dismissed the Revenue’s appeal and the connected stay application.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
The Court : This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) against the order dated 24th June, 2024 passed by the Income Tax Appellate Tribunal “C” Bench, Kolkata (Tribunal) in ITA No. 345/Kol/2024, for the assessment year 2012-13.
The revenue has raised the following substantial questions of law for consideration :
i) Whether in the facts and circumstances of the case the Learned Tribunal erred in law in deleting the addition made under Section 68 and Section 69C of the Income Tax Act, 1961 made by the Assessing Officer by ignoring the larger scam of tax evasion by way of bogus capital gain generated in penny stock?
ii) Whether the Assessee is entitled to tax exception under Section 10(38) of the said Act when the records and materials indicate that the alleged income shown as Long Term Capital Gain is result of manipulation and malpractice of an organized tax evasion?
iii) Whether the Learned Tribunal erred in ignoring the fact that the assessee failed to produce documents/ evidences to establish the genuineness of the transaction in the penny stock “VMS Industries Ltd.” and direct and circumstantial evidence brought on record by the Assessing Officer to establish that the assessee had indulged in manipulation of the share prices of “VMS Industries Ltd.” with a view to fictitious Long Term Capital Gain of Rs.90,95,000/ – claiming the same as exempt from taxation?
We have heard learned advocates on either side.
The Tribunal by the impugned order allowed the appeal filed by the assessee and set aside the order passed by the appellate authority dated 22nd December, 2023 by which the assessment order dated 27th December, 2017 passed under Section 143(3) of the Act was affirmed. The order passed by the first appellate authority was an ex parte order by observing that the assessee did not respond to the notices of hearing issued by the appellate authority. The matter relates to reopening of the assessment under Section 147 of the Act. As could be seen from the assessment order dated 27th December, 2017 the reopening of the assessment was on the basis that specific information has been received from the office of the Principal Directorate of Income Tax (Investigation), Mumbai dated 28th March, 2019 that the assessee has claimed an amount of Rs.90,95,000/- as exemption under Section 10(38) of the Act having arisen on a scrip called ‘VMS Industries Ltd.’. The learned Tribunal has elaborately considered the facts and has pointed out that the information based on which the reopening was done was factually incorrect. The undisputed facts are that the return of income submitted by the assessee was processed under the provisions of section 143(1) of the Act. The appellant had a long term capital gain as per accounts amounting to Rs.41,98,896/- after adjustment of long term capital loss of Rs.4,62,646/- which was claimed as exemption under Section 10(38) of the Act. However, the Assessing Officer reopened the assessment under Section 147 on specific information from the Investigation Wing at Mumbai that the assessee had claimed an amount of Rs.90,95,000/-as exemption under Section 10(38) of the Act which arose in the share scrip called VMS Industries Ltd.’. There is nothing on record to indicate as to where from the Assessing Officer received such information that the assessee had a gain of Rs.90,95,000/- which, according to the assessee, is a short term capital gain of Rs.57,46,787/- which was offered to tax in the original assessment itself. Furthermore, it is clear from the records that there has been no long term capital gain by the appellant in the shares of VMS Industries Ltd. as alleged by the Assessing Officer and, therefore, the learned Tribunal was fully justified in holding that the reopening of assessment was not bad in law. When the assessee has not claimed any exemption under Section 10(38) of the Act, the question of reopening would not arise. Therefore, the learned Tribunal after examining the facts has rightly allowed the appeal filed by the assessee and set aside the order passed by the Assessing Officer as well as the first appellate authority.
Thus, we find no question of law much less substantial question of law arising for consideration in this appeal.
Accordingly, the appeal fails and the same is dismissed.
Consequently, the stay application, IA NO: GA/ 2/ 2025 stands dismissed.
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