Zeeshan Azizmohmed Shaikh Vs ITO (ITAT Mumbai)
Both SEBI and BSE corroborated the fact that Kailash Auto Finance Ltd was not a genuine company – LTCG exemption u/s 10(38) denied – addition u/s 68 sustained
Facts- The assessee is an individual and is engaged in the business of trading in paper. The assessee filed its return of income declaring a total income of Rs. 10,57,900. During the course of assessment proceedings, it was observed that the assessee has sold 1,27,000 shares of Kailash Auto Finance Limited for trade value of Rs. 50,11,000 (including commission paid for transaction) during the year under consideration. It was further observed that LTCG of Rs. 48,59,287 arising out of the above transaction have been claimed as exempt under section 10(38) of the Act. In order to verify the genuineness of the activities/business of Kailash Auto Finance Limited, notices u/s 133(6) of the Act were issued to SEBI/ROC/BSE, Mumbai requesting authorities to intimate about any action pending/initiated against the said company. In reply, the SEBI vide its letter dated 01/11/2016 intimated the AO that Kailash Auto Finance Limited has been barred / suspended / blacklisted from trading at BSE and has also been penalised. It was further informed that vide its order dated 17/03/2015 SEBI has found that the prices were artificially rigged by the directors and other related persons to provide the accommodation entry of bogus LTCG and STCL to the beneficiaries. As assessee was one of the beneficiary, who had earned LTCG to the tune of Rs. 48,59,287 from the sale of shares of Kailash Auto Finance Limited, the assessee was asked to show cause as to why the said claim and commission paid for the transaction be not treated as undisclosed income and added to total income of the assessee.
AO vide order dated 28/12/2016 passed under section 143(3) of the Act held that financial transactions undertaken by the assessee as sham and the entire edifice was only a colourable device used to evade tax. AO further held that the assessee’s claim of earning huge tax-exempt gains fails the test of both genuineness and human probabilities as laid down by the Hon’ble Supreme Court in Sumati Dayal v/s CIT: 214 ITR 801 and CIT v. Durga Prasad More [1971] 82 ITR 540. Thus, AO disallowed the exemption claimed by the assessee under section 10(38) in respect of LTCG and added the same as unexplained cash credit under section 68 of the Act. Similarly, the commission of Rs. 24,713 paid by the assessee in respect of the aforesaid transaction was also disallowed and added to the total income of the assessee.
CIT (A) confirmed the order. Hence, the assessee is before ITAT.
Conclusion- Held that it was informed by the SEBI that Kailash Auto Finance Ltd was indulging in the activities which were in contravention of SEBI Act and Rules. Both the aforesaid findings by two independent authorities corroborated the fact that Kailash Auto Finance Ltd was not a genuine company and was involved in activities to provide bogus long term capital gains to various beneficiaries.
In view of the above, we find no infirmity in the order passed by the learned CIT(A), inter-alia, upholding the addition made by the Assessing Officer under section 68 of the Act in respect of the long term capital gains claimed as exempt by the assessee and also the commission of Rs. 24,713 paid by the assessee in respect of the said transaction.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee challenging the impugned order dated 03.10.2017, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)–3, Thane [“learned CIT(A)”], for the assessment year 2014– 15.
2. The assessee has raised following grounds in its appeal:–
“01 The order of assessment is contrary to the facts and prejudicial to the assessee.
02. On appreciation of the facts and circumstances of the case and law, the additions made by the Learned Assessing Officer and confirmed by the Learned Commissioner of Income Tax (Appeals) are contrary to law and based on erroneous understanding of the facts.
03. On appreciation of the facts and circumstances of the case and law the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer in not holding that the appellant had earned income out of sale of shares of M/s. Kailash Auto Finance Limited as genuine and eligible for exemption U/s. 10(38) of the Act. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted.
04. On appreciation of the facts and circumstances of the case and law the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer in disallowing Long Term Capital Gain of Rs. 48,59,287/- and commission expenses on the same to the tune of Rs. 24,713/-, being consideration received on sale of shares of M/s. Kailash Auto Finance Limited treating the same as unexplained cash credit U/s.68 of the Act. The addition was made solely based on the statement recorded on oath of the third parties and the appellant without any independent and tangible supporting evidences and deserves to be deleted.
05. On appreciation of the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer in making addition on account of deemed dividend U/s. 2(22)(e) of the Act out of advance taken by the appellant to the tune of Rs. 28,53,251/- for business purposes. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and law and deserves to be deleted.
06. The appellant craves to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings.
07. The appellant humbly prays that the appeal be allowed in toto.”
3. When the appeal was called for hearing, no one was present on behalf of the assessee to present the case. There is no application seeking adjournment either. On perusal of the record, it is observed that the appeal was listed for hearing on ten previous occasions and no one appeared for / on behalf of the assessee in any of the hearings. Therefore, we are proceeding to hear this appeal on the basis of submissions made by the learned Departmental Representative (“learned DR”) and the material available on record.
4. The first issue arising in present appeal is with regard to addition made under section 68 of the Act on account of long term capital gains claimed as exempt by the assessee.
5. The brief facts of the case pertaining to this issue, as emanating from the record are: The assessee is a individual and is engaged in the business of trading in paper. The assessee filed its return of income on 19/09/2014 declaring total income of Rs. 10,57,900. During the course of assessment proceedings, it was observed that the assessee has sold 1,27,000 shares of Kailash Auto Finance Limited for trade value of Rs. 50,11,000 (including commission paid for transaction) during the year under consideration. It was further observed that the long term capital gains of Rs. 48,59,287 arising out of the above transaction have been claimed as exempt under section 10(38) of the Act. In order to verify the genuineness of the activities/business of Kailash Auto Finance Limited, notices under section 133(6) of the Act were issued to SEBI/ROC/BSE, Mumbai requesting authorities to intimate about any action pending/initiated against the said company. In reply, the SEBI vide its letter dated 01/11/2016 intimated the Assessing Officer that Kailash Auto Finance Limited has been barred / suspended / blacklisted from trading at BSE and has also been penalised. It was further informed that vide its order dated 17/03/2015 SEBI has found that the prices were artificially rigged by the directors and other related persons to provide the accommodation entry of bogus long term capital gains and short term capital loss to the beneficiaries. As assessee was one of the beneficiary, who had earned long term capital gains to the tune of Rs. 48,59,287 from the sale of shares of Kailash Auto Finance Limited, the assessee was asked to show cause as to why the said claim and commission paid for the transaction be not treated as undisclosed income and added to total income of the assessee. In reply, the assessee submitted that the shares were purchased through payment by RTGS and sale was made online after paying Securities Transaction Tax, therefore sales transaction were genuine. The Assessing Officer vide order dated 28/12/2016 passed under section 143(3) of the Act, after referring to the investigation carried out by the Investigation Wing, Kolkata, inter-alia, on the activities of Kailash Auto Finance Limited, held that financial transactions undertaken by the assessee as sham and the entire edifice was only a colourable device used to evade tax. The Assessing Officer further held that the assessee’s claim of earning huge tax-exempt gains fails the test of both genuineness and human probabilities as laid down by the Hon’ble Supreme Court in Sumati Dayal v/s CIT: 214 ITR 801 and CIT v. Durga Prasad More [1971] 82 ITR 540. Thus, the Assessing Officer disallowed the exemption claimed by the assessee under section 10(38) in respect of long term capital gains and added the same as unexplained cash credit under section 68 of the Act. Similarly, the commission of Rs. 24,713 paid by the assessee in respect of the aforesaid transaction was also disallowed and added to the total income of the assessee.
6. In appeal before the learned CIT(A), assessee submitted that the assessee had paid due Securities Transaction Tax at the time of sale of the securities on the Recognised Stock Exchange. The assessee further submitted that at the time when he bought/sold the said shares, dealing in such shares was absolutely legal and free from any malpractice. The learned CIT(A) vide impugned order dated 03/10/2017 dismissed appeal filed by the assessee on this issue on the basis of the report of SEBI and Directorate Of Investigation, Kolkata. Being aggrieved, the assessee is in appeal before us.
7. During the course of hearing, the learned DR vehemently relied upon the orders passed by the lower authorities.
8. We have considered the submissions and perused the material available on record. From the facts available on record, it is not in dispute that the assessee purchased and sold shares of Kailash Auto Finance Limited, the details of which are as under:
