Ramprasad Agarwal Vs ITO (ITAT Mumbai)
Conclusion: Addition made by AO on the reason that assessee had introduced his own unaccounted money by way of bogus long term capital gain was not correct as AO had not brought any material on record to show that assessee had paid over and above purchase consideration of shares as claimed and evident from the bank account and assessee had produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque.
Held: AO received information that some companies were engaged in the business of issuing penny stocks for which there were large number of beneficiaries claiming bogus long term capital gain/short term capital loss/business loss/speculation loss. He, based on the said information, found that assessee was one of the beneficiaries of the said racket and had earned profit on sale of investments in equity shares of R Ltd. to the tune of Rs.83,45,689/- and claimed the same as exempt under section 10(38). AO, therefore, made an addition of said sum under section 68. It was held AO had not brought any material on record to show that assessee had paid over and above purchase consideration as claimed and evident from the bank account then; in the absence of any evidence it could not be held that the assessee had introduced his own unaccounted money by way of bogus long term capital gain. Also, assessee had produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it was not a case of payment of consideration by in cash. But the transaction was established from the evidence and record which could not be manipulated as all the entries were part of the bank account of assessee and assessee dematerialized the shares in the D-mat account which was also an independent material and evidence could not be manipulated. Therefore, the holding of the shares by the assessee could not be doubted and the finding of AO was based merely on the suspicion and surmises without any cogent material to show that the assessee had introduction his unaccounted income in the shape of long term capital gain.
FULL TEXT OF THE ITAT JUDGMENT
The above titled two appeals have been preferred by the assessee against the order dated 31.07.2018 & 15.12.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2013-14 & 2014-15 respectively.
ITA No. 4843/M/2018
2. The grounds raised by the assessee are as under:
“1. The Income tax Officer – 2(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) erred in issuing notice under section 148 of the Act.
The appellant contends that on the facts and in the circumstances of the case and in law, the issue of notice under section 148 is without jurisdiction, bad in law and hence, needs to be quashed.
2. The Commissioner of Income-tax (Appeals) – 6, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assessing Officer in making an addition of a sum of Rs 83,45,689 under section 68 of the Act holding the capital gains on sale of long-term capital assets being, shares of Rutron International Ltd to be non-genuine and thereby not allowing exemption under section 10(38) of the Act.
The appellant contends that on the facts and in the circumstances of the case and in law, the ClI(A) ought not to have upheld the action of the Assessing Officer in considering the capital gains on sale of long-term capital assets being, shares of Rutron International Ltd to be non-genuine inasmuch as the said shares have been purchased during an earlier year are investments; the same being sold shall necessarily give rise to capital gains and the impugned shares being long-term capital asset, the capital gains Rs 83,45,689 are long-term capital gains in respect of which the Assessing Officer ought to have allowed exemption of section 10(38) of the Act; accordingly, the impugned addition under section 68 of the Act is not justified.
The appellant further, contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the assessment order has been framed in violation and utter disregard to the principles of natural justice inasmuch as, amongst others, the Assessing Officer has not given the documents/ statements on oath to the appellant for rebuttal, which are in his possession and on which he has relied upon and has not given an opportunity to the appellant to cross examine the persons whose statement the Assessing Officer has relied upon.
The appellant further, contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the Assessing Officer has not proved that the cash emanated from the coffers of the appellant.”
3. At the time of hearing the Ld. A.R. did not press the ground No.1 which is against the issue of notice under section 148 of the Act and therefore same is dismissed as not being pressed.
4. The issue raised in 2nd ground of appeal is against the confirmation of addition of Rs.83,45,689/- by the Ld. CIT(A) as made by the AO by treating the capital gain on sale of long term shares of Rutron International Ltd. as non genuine and holding that exemption under section 10(38) of the Act was not allowable.
5. The facts in brief are that the assessee is director of M/s. Sudhir Switchgears P. Ltd. and earns income by way of salary from the said company, house property, other sources and long term capital gain. The assessee filed return of income on 27.03.2014 declaring income of Rs.21,22,111/- which was processed under section 143(1). Thereafter, the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act after the AO received information from DGIT (Inv.), Kolkata vide letter dated 08.09.2016 that some companies were engaged in the business of issuing penny stocks for which there were large number of beneficiaries claiming bogus long term capital gain/short term capital loss/business loss/speculation loss. The AO, based on the said information, found that assessee is one of the beneficiaries of the said racket and had earned profit on sale of investments in equity shares of Rutron International Ltd. to the tune of Rs.83,45,689/- and claimed the same as exempt under section 10(38) of the Act as per details below:
