Atulbhai Amritlal Mehta Vs DCIT (ITAT Ahmedabad)
Summary: The Income Tax Appellate Tribunal (ITAT), Ahmedabad SMC Bench, allowed the appeal of the assessee, Atulbhai Amritlal Mehta, against an addition of Rs.36,26,308/- made under Section 68 of the Income Tax Act, 1961, arising from the sale of shares of Vas Infrastructure Ltd. The dispute related to Assessment Year 2011-12 and concerned the denial of exemption under Section 10(38) on alleged long-term capital gains from penny stock transactions. The Tribunal found that the assessee had furnished supporting documents establishing the purchase and sale of shares through brokers, payment through banking channels, maintenance of demat accounts and payment of Securities Transaction Tax (STT). The Assessing Officer and the Commissioner of Income Tax (Appeals) had not established through specific findings that the transactions were non-genuine or that the particular scrip had been blacklisted by SEBI or a stock exchange regulatory authority.
The assessee had filed the original return on 30 September 2011, declaring nil income and claiming a business loss of Rs.84,15,914/-. Exempt income of Rs.1,80,41,375/- was disclosed, including long-term capital gains of Rs.1,54,25,446/- from transactions on which STT had been paid. The return was initially processed under Section 143(1). Subsequently, the assessment was reopened under Section 147 on the basis of information relating to transactions in Vas Infrastructure Ltd., whose share price had reportedly increased sharply during Financial Year 2010-11. Relying on stock exchange price data and information from the Investigation Wing, Mumbai, the Assessing Officer treated the capital gains of Rs.36,26,308/- as arising from a penny stock transaction. The exemption claimed under Section 10(38) was denied, and the amount was added under Section 68 as an alleged unaccounted cash deposit. The CIT(A), National Faceless Appeal Centre, Delhi, dismissed the assessee’s appeal by order dated 19 September 2022.
Before the Tribunal, the assessee submitted that the shares had been purchased and sold through stock exchange transactions involving identifiable brokers. Supporting evidence included contract notes, broker details, transaction statements, share-wise purchase and sale records, stock summaries, ledger accounts, demat account details and bank statements. The assessee also demonstrated that STT had been paid. Reliance was placed on the Tribunal’s decision in Genuine Finance Pvt. Ltd. Vs DCIT, ITA No.221/Ahd/2021. The Department, on the other hand, maintained that Vas Infrastructure Ltd. was a penny stock and relied on the Investigation Wing’s report and the conclusions recorded by the Assessing Officer and CIT(A).
The Tribunal observed that the scrip of Vas Infrastructure Ltd. had not been blacklisted by SEBI during the relevant period and that the Investigation Wing’s report did not state that the company or the brokers involved had been blacklisted. The assessee’s purchase and sale transactions were supported by contract notes, broker records, bank statements, demat accounts and other documentary evidence. The Tribunal particularly noted that the tax authorities had not provided detailed findings connecting the assessee’s transactions to any manipulation of the market price. Merely relying on the Investigation Wing’s report and the unusual movement in the share price, without examining the assessee’s specific evidence and circumstances, was insufficient on the facts of the case to sustain the addition.
Consequently, the Tribunal held that the Assessing Officer and CIT(A) were not justified in disallowing the exemption under Section 10(38). It further held that the addition under Section 68 could not be sustained by describing the documented share-sale proceeds as an unaccounted cash deposit. The assessee’s appeal was allowed in full. The decision demonstrates the importance of transaction-specific evidence and reasoned findings in proceedings involving alleged bogus long-term capital gains from shares. It does not establish that banking transactions, demat records or STT payment will invariably be sufficient in every penny stock case; the Tribunal’s conclusion rested on the particular evidence and absence of adverse findings in the present proceedings.
Cases Discussed
1. Genuine Finance Pvt. Ltd. Vs DCIT (ITAT Ahmedabad); ITA No. 221/Ahd/2021. The assessee relied upon this decision while supporting the genuineness of the transactions in Vas Infrastructure Ltd. The present order refers to its order date as 28.102.2022. The Tribunal did not reproduce or independently analyse the reasoning in the cited decision.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The appeal filed by the assessee is against the order passed by the Ld. CIT(Appeals), National Faceless Appeal Centre (in short “NFAC”), Delhi on 19.09.2022 for A.Y. 2011-12.
2. The grounds of appeal raised by the assessee are as under:
“1. The Ld. AO passed order of assessment for the assessment year, under section143(3) read with section 147 and 148 of the Act, without proper authority or appropriate jurisdiction under provisions of section 148 of the Act. Thus the order of assessment is void and bad in law.
2. The Learned Commissioner of Income tax Appeals has grossly erred in passing order without understanding the fats of the case and applying his mind. Further the Learned CIT Appeal has passed the order without rebutting the submissions made by the Assessee.
3. The Learned CIT Appeal has grossly erred in passing the order observing in Para 6 Page 14, that the Assessee failed to explain the Source of the Investment. The re-opening and addition to income is on account of sale of shares and not for investment in shares.
4. The CIT Appeal and AO has made no attempt to bring in any evidence on record. They accepted SEBI information as an irrefutable evidence or proof against the Assessee.
5. On the facts and circumstances of the case, the AO has grossly erred in initiating the penalty proceedings u/s 271(1)(c) of the act when no such penalty is exigible. Since the proceedings are wrongly initiated, AO may be directed to withdraw such proceedings.
6. All the above grounds of appeal are independent from one other and without prejudice to one other. We further crave to add new grounds of appeal during the course of hearing before your Honor.”
3. The assessee filed its original return of income for the year under consideration on 30.09.2011 declaring total income at Rs. NIL and claimed business loss of Rs. 84,15,914/-. The assessee claimed exempt income of Rs. 1,80,41,375/- inclusive of Rs. 1,54,25,446/- being Long Term Capital Gains from transactions on which securities transaction tax was paid. Return of income was processed under Section 143(1) of the Act. The assessee is having capital gain income from investment in share, F & O Trading and currency market. The assessee is also having interest income. The assessee’s case was reopened under Section 147 of the Act, after recording reasons and necessary approval. The Assessing Officer observed that during F.Y. 2010-11 the assessee carried out sale transactions in the penny stock scrip VAS Infrastructure Ltd. The share prices of Vas Infrastructure Ltd. was displayed a sharp rise during the F.Y. 2010-11 and the sharp rise was suspected by the Assessing Officer. The Assessing Officer observed that the assessee earned capital gain of Rs. 36,26,308/- and claimed exemption income under Section 10(38) of the Act. The prices of shares of Vas Infrastructure Ltd. for the period from 01.04.2010 to 31.03.2011 verifiable from BSE India website shows that the scrip exhibits the Penny Stock scrip and there was a report from the DDIT (Investigation), Unit-6(2), Mumbai which has stated the manipulation of prices in respect of penny stock companies. The Assessing Officer further made addition of Rs. 36,26,308/- and thereby denied exemption under Section 10(38) and audited the same under Section 68 of the Act as unaccounted cash deposit.
4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee.
5. The Ld. A.R. submitted that the assessee company is dealing with share trading as investment and during the F.Y. 2011-12 the assessee declared total loss of Rs. 84,15,914/- and filed return of income under Section 139(1) and Section 148. The assessee entered into transaction of Vas Infrastructure Ltd. to its share broker on various dates from April 2010 to November 2010. The assessee has given the details relates to the brokers as well as the transaction was carried out through the National Stock Exchange. The Ld. A.R. relied upon various decisions including the decision of the Tribunal in case of Genuine Finance Pvt. Ltd. vs. DCIT (in ITA No. 221/Ahd/2021 order dated 28.102.2022) .
6. The Ld. D.R. submitted that the scrip of M/s. Vas Infrastructure Ltd. was a penny stock and from the report of Investigation Wing the same is confirmed. The Ld. D.R. relied upon the assessment order and the order of the CIT(A).
7. Heard both the parties and perused all the relevant material available on record. The scrip of M/s. Vas Infrastructure Ltd. was not black listed by the SEBI at the relevant period and the brokers from whom the assessee has purchased and sold the scrip has been detailed by the assessee through contract notes brokers details and other relevant documents. The assessee has also pointed out that on these transactions the assessee has paid Securities Transaction Tax i.e. “STT”. The investigation report has nowhere stated that the scrip of M/s. Vas Infrastructure Ltd. or any of the brokers have been black listed. In fact, the Assessing Officer as well as CIT(A) has not given any finding in respect of assessee’s case as relates to fluctuation in the market related to scrip of Vas Infrastructure Ltd. The assessee purchase share online through various brokers and the payments made to brokers are reflected in the bank account. The assessee has DP accounts with all the brokers and the proof of payment was also duly filed. The Assessing Officer as well as CIT(A) has not given any detail finding as to how the assessee is dealing with penny stock. In fact, scrip of purchase and sales of M/s. Vas Infrastructure Ltd. has not been declared a penny stock by SEBI or the Stock Exchange Regulatory Authority. The assessee has filed statement of scrip wise purchase and sales, stocks summary, copy of assessee’s ledger in broker’s books and copy of broker’s ledger in books of assessee for A.Y. 2011-12 alongwith bank statements and bank book. Thus, the Assessing Officer as well as the CIT(A) was not right in disallowing the claim of exempt income under Section 10(38) of the Act. The Assessing Officer was not right in making the addition under Section 68 as this cannot termed as unaccounted cash deposit. Therefore, the appeal of the assessee is allowed.
8. In result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 15/03/2023
