Sejalben N. Vora Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that addition u/s. 68 of the Income Tax Act towards long term capital gain treating sale of scrip as bogus on the basis of report unearthed in case of third party without any cogent material brought against assessee is unsustainable in the eye of law.
Facts- During the year under consideration, the appellant claimed substantial long term capital gain, exempt u/s. 10(38) of the Act on sale of script of M/s. Comfort Fincap Ltd. to the tune of Rs.1,65,74,716/-. On the basis of the investigation report issued by the Investigating Wing, Kolkata available with the Revenue, a show cause notice was issued to the assessee dated 09.10.2016 as to why LTCG earned to the tune of Rs.1,65,74,716/- from the sale of share of M/s. Comfort Fincap Ltd. should not be treated as bogus and the addition u/s. 68 of the Act should not be made by treating the same as unexplained cash credit.
Commissioner (A) confirmed the addition. Being aggrieved, the present appeal is filed.
Conclusion- Held that the addition treating the long term capital gain earned by the assessee out of the sale of impugned shares of the company namely M/s. Comfort Fincap Ltd. on the basis of report unearthed by any third party in the absence of any cogent material brought against the assessee is not sustainable in the eye of law. Therefore, respectfully, relying upon the same, we delete the addition made by the Revenue.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The instant three appeals filed at the behest of three different assessees are directed against the orders all dated 12.12.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-6, Ahmedabad (in short ‘CIT(A)’) arising out of the orders all dated 23.12.2016 passed by the ITO, Ward-1(1), Bhavnagar under Section 143(3) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) for Assessment Year 2014-15.
2. Since all three the appeals filed by the assessee relate to similar issue, these are heard analogously and are being disposed of by a common order for the sake of convenience. We take ITA No.329/Ahd/2018 in case of Sejalben N. Vora as a lead case.
ITA No.329/Ahd/2018 (Sejalben N. Vora)
3. The addition to the tune of Rs.1,65,74,720/- on account of long term capital gains on sale of share is the subject matter before us.
4. The brief facts leading to this case is this that on verification of computation of income it was found that the appellant claimed substantial long term capital gain, exempt under Section 10(38) of the Act on sale of script of M/s. Comfort Fincap Ltd. to the tune of Rs.1,65,74,716/-. The details of sale on purchase of these share were called for and it was found that the said shares were purchased off market and it was preferential allotment. The financials of M/s. Comfort Fincap Ltd. (earlier known as Parasnath Textile Ltd.) alongwith the price movement was In fact, the assessee purchased 55000 shares of the said Parasnath Textile Ltd. at Rs.18/- having face value of Rs.10/- dated 14.03.2011 and the Company allotted share of M/s. Comfort Fincap Ltd. on 04.06.2011. Initially, the said company was not listed on BSE or NSE but subsequently got listed at BSE w.e.f. 25.03.20 13 at the price of Rs.387/- per share. The assessee stated to the department of not having any knowledge of the fundamentals of the company, namely, M/s. Comfort Fincap Ltd. but purchased shares. On the basis of the investigation report issued by the Investigating Wing, Kolkata available with the Revenue, a show cause notice was issued to the assessee dated 09.10.2016 as to why LTCG earned to the tune of Rs.1,65,74,716/- from the sale of share of M/s. Comfort Fincap Ltd. should not be treated as bogus and the addition under Section 68 of the Act should not be made by treating the same as unexplained cash credit.
5. The case of the assessee before the Revenue is this that the assessee was dealing in investment of shares and securities of different companies since long and in the normal course of affairs she invested in the shares of impugned companies in March 2011 through offline transaction. However, the payment was made through banking channel. The share was subsequently dematerialized and the shares were further held by the assessee for more than one year and finally sold through stock exchange. STT was duly paid off at applicable rates. The Ld. AR drew our attention to the details of different shares purchased by the assessee appearing at Page Nos. 66 & 67 of paper book filed before us at the time of hearing of the matter. The main allegation in respect of the price of the share without having any financials supports of the company being not engaged in any major business activity is, therefore, having no bearing with the scrip purchased by the assessee and finally sold off and consequently, proposed addition is also not called for treating the long term capital gain out of sale to these scrip as bogus is not tenable in the eye of law as of the main contention made out by the assessee before the Revenue which has also been reiterated before us. However, such explanation rendered by the assessee was not found to be acceptable and the addition was, therefore, made which was, in turn, confirmed by the First Appellate Authority. Hence, the instant appeal before us.
6. Ld. Counsel appearing for the assessee submitted before us that the issue of treating the long term capital gain out of the sale of scrip of the impugned company, namely, M/s. Comfort Fincap Ltd. has already been decided by the Co-ordinate Bench to the case of Alpa Udaykumar Shah vs. ITO in ITA No.391/Ahd/2018 for A.Y. 2014-15 & Sanjay Prataplal Mehta vs. DCIT in ITA No.509/Ahd/2018 for A.Y. 2014-15, a copy of each of the judgment has been annexed with the paper book filed before us by the assessee. It was further submitted by Ld. Counsel appearing for the assessee that evidences in respect of purchase of shares being the letter of allotment of shares, share certificate, delivery register is duly filed before us by annexing the same in the paper book. Evidences in regard to sale of shares, namely, bank statement, ledger in the books of Comfort Securities, ledger of Comfort Securities in assessee’s books, statement of gain/loss on shares, closing stock statement and contract notes are also part of the paper book. It was further contended that the assessee cannot be said to be involved either rigging of share prices or any other sort of wrong doings as alleged by the Revenue. The assessee further submitted before us as follows:
“Assuming without admitting that script in question was used by accommodation entry providers for providing entries in the form of bogus LTCG, then also LTCG earned by the assessee cannot be treated as the bogus in view of the following vital aspects emanating from the orders of lower authorities:
> There is no evidence to prove that there is any live nexus between the “assessee” & “entry provider” or “company in question or its directors”
> There is nothing on record to even remotely demonstrate that assessee has “paid any cash” to the buyer, broker or any other entry provider for taking entry in form of LTCG;
> “General information” with AO w.r.t. accommodation entries in relation to the scrip in question can, at best, be the “starting point of investigation” so as to find out whether assessee has actually earned genuine LTCG or has availed accommodation entries. However, such “general information” (which, this case, has also not been parted with the assessee) can never take place of “evidence” to hold that assessee has earned bogus LTCG.
> Unless “AO” carries out “independent inquiry” and brings on record any “cogent material” to “link assessee with any entry providers” and also demonstrate “exchange of cash” for availing accommodation entry in the form of LTCG, AO cannot presume that dealings of the assessee in view of the scrip in question are bogus merely based on “general information”.
> “Suspicion”, howsoever strong, can never take place of “evidence” in view of the settled legal position.
> In this case, “AO” has not carried out any “independent inquiry” so as to “bridge the gap” between “assessee” and “information received w.r.t. accommodation entries in relation to scrip in question”. Without bridging such gap, AO could not have treated LTCG in question as bogus.
> In any case, “AO has taxed only LTCG” which implies “40” has allowed deduction of “cost of from the total “sale consideration” of shares (Pg.19-20 of Asst. Order r.w. Pgs.65 & 159 of P/B). Thus, it is implied that purchase of shares has been admitted to be “genuine transaction” by “AO”. this stage, following aspects may be appreciated:
> Transactions of purchase and sale of shares go hand to hand. There could not be any sale of shares without actually purchasing shares.
> Once purchase has been found to be genuine, then corresponding sales of shares cannot be doubted unless and until some adverse material has been brought on record, the same is provided to assessee and opportunity has been granted to the assessee to furnish response in relation to the same.
> In this case, AO took contradictory stand i.c, on one hand, AO treated the entire transaction as a sham transaction and on the other hand, AO has allowed cost of acquisition of the shares while computing LTCG. Thus, blown hot and cold simultaneously. Such an approach is not permissible in the eye of law
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