Shri Badresh Mansukhlal Dodhia Vs ACIT (ITAT Mumbai)
Without evidence LTCG on sale of Shares through Recognized Stock Exchange cannot be treated as Accommodation Entries
The main issue under consideration in this appeal is the claim of deduction u/s 10(38) of the Act, the relevant facts are, during the year assessee had earned LTCG of Rs. 99,55,347/- on sale of shares of the scrip M/s Parag Shilpa Investments Ltd (later name changed to M/s PS IT Infra and Service Ltd). The details of the transaction are, assessee purchased 12,500 shares (face value of Rs.10/-) at cost of Rs. 500,000/- and later the face value of the shares were split into Re.1/- per share. The total number shares of the assessee were increased to 125000 shares. All the above shares were sold by the assessee during this assessment year thru the stock exchange. The sales consideration received by the assessee was many fold. The AO suspected the transaction were prearranged move to get entry of exempted Long Term Capital Gains. AO relying on the investigation made by the Investigation wing in the similar cases and gave incidences of method adopted to increase the share prices in the short period of time in his order.
AO recorded the facts in this case that assessee purchased the shares in advise of a person Mr. Eknath of M/s Bushit Trading Pvt Ltd, whom he has not met before. The assessee has not made any other investment in shares of unknown company while he made a windfall gains in this share which has a very dubious financials. Assessee has no knowledge of its directors, nature of business, turnover or profit as stated in his statement of oath. Further AO analyzed the financials of the PS IT Infra in his order. He observed that the share prices of this company were jacked up without any strength in its financials and analyzed the movement in the share prices from May’12 to Jan’16 in his report. AO asked the assessee to submit the transactions in demat account and based on the details, notices u/s 133(6) were issued to the purchasers of these shares. The identity or credit worthiness of these purchasers were not submitted and the assessee took a plea that these transactions were executed through stock exchange.
The statement of the assessee were recorded u/s 131 of the Act by the AO in order to appreciate the facts and AO analyzed the statement and observed in his order that the notice issues to Bushit Trading Pvt Ltd returned unserved and the details of this company given by the assessee are not proper and as per the statement given by shri Jagdish Purohit under oath that Shri Eknath Mandavkar director of Bushit Trading is an entry operator. Therefore, AO came to the conclusion that assessee is having acquaintance with the entry provider. He observed tat another company involved in the transaction is Compass Distributor and assessee purchased the shares off the market by paying to the unknown company. Not only the assessee invested in the above share, his other family members also purchased the same.
AO by relying on various case law, disallowed the LTCG claimed by the assessee and made the addition u/s 68 of the Act.
Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of the assessee dismissed the appeal of the assessee
Ld. AR submitted that assessee has even though not met Shri Eknath based on the advertisement in Economic Times, he contacted Shri Eknath and applied for the shares and purchased the shares by paying through cheque and the share certificate was issued to the assessee on 25.10.2013. She further submitted that the findings of AO that Shri Jagdish is a dummy director is not relevant to the facts of this case and moreover, nowhere in the statement recorded u/s 131(1), assessee has accepted this a sham transaction, it is a genuine transaction and whatever the long term capital gain earned by the assessee is only out of their transaction during this period. Therefore, she prayed that proper justice may be given to the assessee.
ITAT relied on order of Coordinate Bench of ITAT in ITA No. 4843 & 1228/Mum/2018 and held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similar in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. We find that the ld. CIT(A) has also referred to SEBI enquiry against the M/s Anand Rathi Share and Stock Brokers Ltd. However, we note that the said enquiry was regarding financial irregularities and use of fund belonging to the clients for the purpose other than, the purchase of shares on behalf of the clients. Therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain. The decisions replied upon the ld. DR in case of Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of the present case as the said decision is in respect penny stock purchase by the assessee from a persons who was found to be indulged in providing bogus capital gain entries whereas in the case of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present six (6) appeals have been filed by above said
assessees against the consolidated order of Ld. Commissioner of Income Tax(Appeal) in short referred as ‘Ld. CIT(A)’, Thane, dated 31.08.2018 for Assessment Year (in short AY) 2015-16 respectively.
2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. First, we are taking ITA No. 5544/Mum/2018 for Assessment Year 2015-16 as a lead case.
3. The brief facts of the case are, assessee is the director of M/s Dodhia Synthetics Ltd. & partner of M/s Hi Tech Yarns. During the year under consideration, assessee has derived its income from business, capital gains and income from other sources. The return of income was filed on 29.10.15 declaring total income at Rs. 20,98,850/-. Thereafter, the case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) along with questionnaire were duly served upon the assessee. In response, AR of the assessee attended and furnished the relevant information as called for.
4. The main issue under consideration in this appeal is the claim of deduction u/s 10(38) of the Act, the relevant facts are, during the year assessee had earned LTCG of Rs. 99,55,347/- on sale of shares of the scrip M/s Parag Shilpa Investments Ltd (later name changed to M/s PS IT Infra and Service Ltd). The details of the transaction are, assessee purchased 12,500 shares (face value of Rs.10/-) at cost of Rs. 500,000/- and later the face value of the shares were split into Re.1/- per share. The total number shares of the assessee were increased to 125000 shares. All the above shares were sold by the assessee during this assessment year thru the stock exchange. The sales consideration received by the assessee was many fold. The AO suspected the transaction were prearranged move to get entry of exempted Long Term Capital Gains. AO relying on the investigation made by the Investigation wing in the similar cases and gave incidences of method adopted to increase the share prices in the short period of time in his order.
5. AO recorded the facts in this case that assessee purchased the shares in advise of a person Mr. Eknath of M/s Bushit Trading Pvt Ltd, whom he has not met before. The assessee has not made any other investment in shares of unknown company while he made a windfall gains in this share which has a very dubious financials. Assessee has no knowledge of its directors, nature of business, turnover or profit as stated in his statement of oath. Further AO analyzed the financials of the PS IT Infra in his order. He observed that the share prices of this company were jacked up without any strength in its financials and analyzed the movement in the share prices from May’12 to Jan’16 in his report. AO asked the assessee to submit the transactions in demat account and based on the details, notices u/s 133(6) were issued to the purchasers of these shares. The identity or credit worthiness of these purchasers were not submitted and the assessee took a plea that these transactions were executed through stock exchange.
6. The statement of the assessee were recorded u/s 131 of the Act by the AO in order to appreciate the facts and AO analyzed the statement and observed in his order that the notice issues to Bushit Trading Pvt Ltd returned unserved and the details of this company given by the assessee are not proper and as per the statement given by shri Jagdish Purohit under oath that Shri Eknath Mandavkar director of Bushit Trading is an entry operator. Therefore, AO came to the conclusion that assessee is having acquaintance with the entry provider. He observed tat another company involved in the transaction is Compass Distributor and assessee purchased the shares off the market by paying to the unknown company. Not only the assessee invested in the above share, his other family members also purchased the same.
7. When the detailed show cause notice was issued to the assessee, in response, assessee submitted the below reply:
“…With reference to your show cause notice u/s 142(1) Dated 08-12-2017” proposing to make addition of Rs. 99,55,347 u/s 68 by disallowing the LTCG claimed as exempt u/s. 10(38) from sale of PS IT Infra shares for AY 2015-16, the undersigned assessee hereby submit as under:
1) For AY 2015-16, the Return of Income disclosing the total income of Rs. 20,98,850 was filed on 29.10.2015. During the year relevant to AY 2015-16, the assessee had sold shares of a listed company namely ‘PS IT Infrastructure’ for Rs. 1,04,55,347 which were purchased for Rs. 5,00,000/- during AY 2014-15, resulting in LTCG of Rs, 99,55,347 claimed as exempt u/s. 10(38),
2) Under Para 02 of SCN, it is mentioned that ‘during the course of assessment you have furnished purchase bill of shares & DP Statements to strengthen your claim of LTCG’ which is not correct. In addition to above, the assessee has submitted many other documentary evidences also as per the List enclosed to prove the claim of LTCG, which are not mentioned in SCN. The List of documents and evidences submitted during the assessment proceeding is attached for your perusal.
3) Considering the documentary evidences, the LTCG disclosed by the assessee is genuine and not bogus or accommodation entry because of the following facts :
a) I had purchased 12,500 equity shares of Rs, 10 each (FV) of ‘PS IT Infrastructure’ from the Share holder M/s. Compass Distributors Pvt Ltd., Kolkata, for Rs. 5,00,000 @ Rs. 40/- per share on 12-08-2013. The purchase was off-market and by physical mode. The share was quoted between Rs. 40-45 on BSE on the date of purchase.
b) The payment of Rs. 5,00,000 was made by A/c Payee Cheque, which is duly debited in Saving A/c No. 27408 on 12-08-2013. The investment was made out of my own surplus funds and is disclosed in the Balance Sheet as on 31/03/2014. The shares were transferred by the company on 25/10/2013.
c) On 15-01-2014, I opened Demat Account No. 1205220000007893 with the Stock broker M/s. BHH Securities Pvt. Ltd, Mumbai to dematerialize the physical shares. The shares were acquired during August-2013 and were sold during November-2014 to February-2015.
d) The impugned shares were sold through SEBI registered share Broker M/s. BHH Securities Pvt Ltd., Mumbai on BSE screen based platform on various dates. Following the sale of shares, the Broker issued contract notes cum Bills for sale of shares (copy submitted). The shares were transferred from Demat Account No. 1205220000007893 to the Broker’s account, who then transferred to BSE.
e) After transfer of shares from my Demat A/c to Broker’s A/c, M/s. BHH Securities Pvt. Ltd., who received the payment from BSE, issued the cheques in my favour which were then deposited and realized in Saving A/c 27408. Copy of Bank pass book for 2014-15 is enclosed.
f) From the series of above events, your goodself will appreciate that the transactions of purchase and sales of shares were genuine and the LTCG claimed is not bogus or accommodation entry,
4) Under Para No. 05.1 of SCN, the financial results of ‘PS IT Infrastructure’ for year ended 31-03-2012 & 31-03-2013 are mentioned but without comparing them with results for year end 31-03-2014 & 31-03-2015. The Annual reports of PS IT Infra far subsequents years are enclosed for your perusal
