Jitendra Udaylal Jain Vs National Faceless Assessment Centre (NFAC) (ITAT Mumbai)
ITAT Mumbai held that addition under section 68 of the Income Tax Act merely on the basis of information and statement of third party without any tangible material on record is unsustainable in law.
Facts- Based on the information from Director of General of Income tax (Inv) Pune, on Bogus Long term capital gain manipulation in market prices of shares of certain companies listed on Bombay Stock Exchange, assessee was identified as one of the beneficiary who obtained through above said manipulation of prices of shares to the extent of ₹.1,10,80,500/-. Based on the above information the case of the assessee was reopened by issue of notice u/s. 148 of the Act after proper approval.
AO observed that assessee earned Long Term Capital Gain during the year and claimed it as exempt u/s. 10(38) of the Act and he considered this transaction as suspicions because of huge claim of capital gains earned by the assessee.
AO heavily relied on the various statements recorded by the various entry operators, brokers and exit operators confirmed the addition by adding the sale proceeds of shares u/s. 68 of the Act to the extent of ₹.1,10,52,724/-. CIT(A) sustained the addition.
Conclusion- Held that the assessee has not made the above disputed investments but his mother who bought the initial shares through preferential allotment and at the demise of his mother, he got those shares by “will”. The assessee has sold those shares through his regular broker in the BSE. We observe that all the shares were purchased and sold through the proper banking channel.
Held only difference is the script is different, however, the assessee has no saying on the script traded by him and there is no relationship established with the accommodation entry providers anywhere on the record. Further the assessee himself a regular investor and not linked to any other suspected transactions. Merely because he has dealt with one of the suspected scripts, we cannot take adverse view without actually bring any material on record.
Held the assessee’s case was brought under assessment without any tangible material on record but on basis of information and statement of third party and hence the same is unsustainable in law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against order of the Learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld. CIT(A)”] dated 04.05.2023 for the A.Y.2012-13 passed under section 250 of Income-tax Act, 1961 (in short “Act”).
2. Brief facts of the case are, Assessee has filed his return of income for A.Y.2012-13 on 15.09.2012 declaring total income of ₹.20,31,298/-. Based on the information from Director of General of Income tax (Inv) Pune, on Bogus Long term capital gain manipulation in market prices of shares of certain companies listed on Bombay Stock Exchange, assessee was identified as one of the beneficiary who obtained through above said manipulation of prices of shares to the extent of ₹.1,10,80,500/-. Based on the above information the case of the assessee was reopened by issue of notice under section 148 of the Act on 29.03.2016 after proper approval. In response, Ld.AR of the assessee submitted a letter dated 06.04.2016 with the request to treat the original return filed in compliance with the notice under section 148 of the Act and asked for the copy of reasons recorded before issue of notices. The reasons were supplied to the assessee and statutory notice under section 143(2) of the Act were issued and served on the assessee.
3. Based on the information received from assessee, it was noticed that assessee bought 75000 shares of M/s. Rander Corporation Ltd.,@₹.13/- per share and sold the same @147.37/- and declared the net gain of ₹.1,00,77,724/. The Assessing Officer observed that assessee earned Long Term Capital Gain during the year and claimed it as exempt under section 10(38) of the Act and he considered this transaction as suspicions because of huge claim of capital gains earned by the assessee.
4. By relying on the findings of the Kolkata Investigation Wing wherein they have analysed 84 penny stocks and heavily relied on their findings and found that M/s. Rander Corporation Ltd., is one among them and further, he noticed, assessee has dealt only with shares of M/s.Rander Corporation Ltd., and has analyzed the financials of the M/s.Rander Corporation Ltd., and the price fluctuations in the market. He heavily relied on the statements of Shri Amar Chand Rander, Managing Director of M/s. Rander Corporation Ltd., who has explained clearly the modus operandi and the price of these shares were artificially manipulated and controlled by Shri Natwar Lal Daga in order to provide accommodation entries to various beneficiaries. Based on the various beneficiaries statements, share brokers statements and exit providers statements and further analyzed the individual statements of Shri Raj Kumar Kedia, Shri Natwar Lal Daga and Shri Kishan Khadaria, he came to the conclusion that assessee is one of the beneficiaries who has taken the benefit of manipulation in the share prices of M/s. Rander Corporation Ltd., and issued notices to the assessee.
5. In response assessee has submitted a letter dated 26.12.2016 in which assessee has submitted that all the purchases and sales of the above said shares were through Demat Account and payments were through banking channels and filed documents of broker note. In support of the above contention, it was submitted that all the prescribed conditions laid down under section 10(38) of the Act were complied with. The sales were done through registered Stock Exchange and registered SEBI brokers. The statement of Director of the M/s. Rander Corporation Ltd., or any person before authorities has no connection with the assessee and there is no connection established by the revenue.
6. After considering the submissions of the assessee, Assessing Officer rejected the same and observed that the statement of assessee was recorded under section 131 of the Act wherein the assessee was confronted with the various statements of the operators, brokers and entry providers where all have admitted of providing accommodation entries, that statement recorded of the various operators are related to the scrips traded by the assessee which are directly linked to the assessee as they have purchased the shares from assessee on stock exchange, which establishes the direct relationship with the transactions.
He heavily relied on the various statements recorded by the various entry operators, brokers and exit operators, the Assessing Officer confirmed the addition by adding the sale proceeds of shares under section 68 of the Act to the extent of ₹.1,10,52,724/-.
7. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and filed detailed submissions. After considering the submissions of the assessee, Ld. CIT(A) sustained the action of the Assessing Officer.
8. Aggrieved assessee is in appeal before us raising following grounds: –
“1. The Ld. CIT erred in confirming the long term capital gain income of Rs. 1,10,52,724/- as income u/s 68 without appreciating to the fact that individual appellant had invested in stocks as all were against deliveries as reflected in his Balance sheet as investment and where all payments were against delivery taken. Changing the character of gain as income from Other Sources is bad-in-law and facts; therefore, the surplus arising may be treated as a LTCG u/s 10(38).
2. The appellant craves leave to add, amend, alter, drop any of the grounds of appeal.”
9. At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts of the case and with regard to additions made by the Assessing Officer, Ld. AR submitted that Assessing Officer on the basis of reopening the case u/s 147 and by issuing notice u/s 148 dated 29.03.2016 based on some information received from DGIT(Inv.), Mumbai that the enquiry reveals, the company is a shell company and the script was used for accommodation entry of bogus LTCG, bogus STCG and bogus STCL/bogus business loss claimed through trading of shares, it was found that the assessee had also obtained such accommodation entries in the form of bogus LTCG of ₹.1,10,52,724/- and thereby converted undisclosed income into tax free income without paying taxes.
10. Ld.AR of the assessee submitted that Assessing Officer on the basis of irrelevant materials and statement recorded on oath of Mr.Amar Chand Rander Entry Operator of M/s. Rander Corporation Ltd., wherein he has admitted of being a bogus entry provider and has provided bogus entry, the Sale consideration shown by the Assessee from share transactions are treated as bogus and added as concealment of income of ₹.1,10,52,724/-. He submitted that the shares were transferred/purchased through preferential allotment mode. Assessing Officer observed that the low share price on date of acquisition on 04.10.2016 of 1,50,000 shares of face value ₹.10 and premium of ₹.3/- held in name of late Smt. Badambai U. Jain (Mother of the assessee). Thereafter, the Assessee acquired said shares through “will” dated 25.04.2011 and after death of the mother on 06.06.2011, the assessee received equal proportionate share of 75,000 shares on 29.10.2011 with high price of ₹.145/- each per share.
11. Ld.AR of the assessee objected to the addition made by the Assessing Officer and submitted that the addition made by the Assessing Officer is not sustainable. He submitted that in Assessment year i.e. A.Y.2012-13, Assessee sold shares and booked the Short Term capital gain. (Page No. 11-22 of paper book) Summary is given as under.
