Adverse view against innocent regular investor due to misuse of some person to rig certain shares is unjustified

ITO Vs Ronak Iqbal Lakhani (ITAT Mumbai)

ITAT Mumbai held that merely because some person misused the share market to rig certain shares in the share market, adverse view against innocent regular investor is unjustifiable and unsustainable in law.

Facts- AO issued notice u/s 148 of the Act vide notice dated 3 1.03.2019 (time barring last date of six (6) years). The AO has resorted to re-open on the basis of report from the DDIT(Inv.) that the assessee during the year under consideration has transacted penny-stock/scrip of M/s. VAS Infrastructure Ltd. (M/s. VAS). AO noted that the assessee has traded in the scrip of M/s. VAS and has sold 12474 shares during the year for sale consideration of Rs. 11,55,812/- and thus earned STCG of Rs.93,597/-. According to the information from the DDIT, transaction/trading of this scrip (M/s. VAS) was speculative in nature and due to rigging, the price of the scrip was artificially increased or decreased to accommodate beneficiaries of LTCG/loss /STCG/loss; and since the assessee has traded in the said scrip as per the information received from the investigation wing, the AO re-opened the assessment of the assessee.

During the re-assessment proceedings, the assessee brought to the notice of the AO that he is a non-resident Canadian Citizen of Indian Origin and has appointed a Professional Investment Advisor and Portfolio Manager recognized by the BSE and NSE. And that the investments/trading are carried out by the port folio manager on behalf of assessee and as such assessee has no knowledge of this company M/s. VAS and therefore has no intention of doing the alleged money laundering. Thus, it was pointed out to the AO that the entire share trading in investment funds under various scheme were being handled by Portfolio Manager. However, the AO taking note of the investigation report and modus operandi of entry providers and citing few case laws rejected the assessee’s contentions and added the entire sale consideration from this scrip to the tune of Rs.11,59,966/- u/s 68 of the Act.

CIT(A) deleted the addition. Aggrieved, the revenue is before us.

Conclusion- Merely because some person misused the share market to rig certain shares in the share market for nefarious purpose, cannot be the ground to draw adverse view against innocent regular investors like assessee. So we decline to interfere with the action of the Ld. CIT(A) who rightly deleted the addition made by the AO without an iota of evidence against the assessee and without being part of any wrong doing. So the revenue appeal is dismissed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-57, Dethi dated 16.02.2022 for the assessment year 2012-13.

2. The main grievance of the revenue is against the action of the CIT(A) deleting the addition made by the AO u/s 68 of the Income Tax Act, 1961 (hereinafter “the Act”) of Rs.11,59,966/-.

3. Brief facts of the case are that the assessee an individual who is a Canadian Citizen of Indian Origin, had filed his/her return of income on 31.07.2012 declaring total income at Rs.41,850/-. The return was processed u/s 143(1) of the Act whereby the return of income was accepted on 09.02.2 13. Thereafter, the AO issued notice u/s 148 of the Act vide notice dated 3 1.03.2019 (time barring last date of six (6) years). The AO has resorted to re-open on the basis of report from the DDIT(Inv.) that the assessee during the year under consideration has transacted penny-stock/scrip of M/s. VAS Infrastructure Ltd. (hereinafter “M/s. VAS”). The AO noted that the assessee has traded in the scrip of M/s. VAS and has sold 12474 shares during the year for sale consideration of Rs. 11,55,812/- and thus earned Short Term Capital Gain (STCG) of Rs.93,597/- (Rs.11,44,812/- minus Rs. 10,62,215/-). According to the information from the DDIT, transaction/trading of this scrip (M/s. VAS) was speculative in nature and due to rigging, the price of the scrip was artificially increased or decreased to accommodate beneficiaries of Long Term Capital Gain (LTCG)/loss /Short Term Capital Gain/loss; and since the assessee has traded in the said scrip as per the information received from the investigation wing, the AO re-opened the assessment of the assessee.

4. During the re-assessment proceedings, the assessee brought to the notice of the AO that he is a non-resident Canadian Citizen of Indian Origin and has appointed a Professional Investment Advisor and Portfolio Manager recognized by the BSE and NSE. And that the investments/trading are carried out by the port folio manager on behalf of assessee and as such assessee has no knowledge of this company M/s. VAS and therefore has no intention of doing the alleged money laundering. Thus, it was pointed out to the AO that the entire share trading in investment funds under various scheme were being handled by Portfolio Manager. However, the AO taking note of the investigation report and modus operandi of entry providers and citing few case laws rejected the assessee’s contentions and added the entire sale consideration from this scrip to the tune of Rs.11,59,966/- u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee brought to the notice of the Ld. CIT(A) that in the year under consideration that the assessee has made a loss of Rs. 1.07 crores consisting of short term capital loss of Rs.24,73,41 8/- and long term capital loss of Rs.82,87,928/-. Thus, total capital loss was to the tune of Rs.1,07,61,346/-. The assessee also brought to the notice of the Ld. CIT(A) that assessee’s investments were handled by Professional Investment Advisor and Portfolio Manager namely M/s. Wealth Strartz Consultants Pvt. Ltd. and trading has been done through broker Shri Kantilal Chhaganlal Securities Pvt. Ltd. which is registered with BSE and ESE and filed all the documents to prove that the assessee had purchased shares of M/s. VAS on 27.10.2010 and 3.11.2010 total shares of 12,474 and sold the same on various dates between 07.04.2011 to 05.12.2011 at prevailing rates and made a modest gain of Rs.93,598/- (purchase for Rs.10,62,216/- and sale for Rs.11,55,812/-) which was offered to tax in the original return of income filed on 31.07.2012. The Ld. CIT(A) taking note of the aforesaid facts has given relief to the assessee by taking note that all the shares were purchased during the period between 24.10.2010 to 03.11.2010 and sold the same also in the year under consideration; and the payments were made through the Portfolio Manager; and that the assessee has already offered tax on the short term capital gain. The Ld. CIT(E) also noted that the addition made by the AO would amount to double taxation because assessee has already offered to tax in the original return. And therefore, he deleted the addition. Aggrieved, the revenue is before us.

4. We have heard both the parties and perused the records. We note that the assessee is an individual and is a non-resident. The assessee is a citizen of Canada and a person of Indian Origin. For investment in shares and securities, she has appointed a financial expert viz (Professional Investment Advisor and Portfolio Manager) namely M/s. Wealth Strartz Consultants Pvt. Ltd; and the Portfolio Manager was making investment and in the year under consideration, the assessee incurred loss of Rs. 1.07 crores and has invested in several blue chip companies including Reliance, Vipro etc along with M/s. VAS; and in the year under consideration has traded in the shares of M/s. VAS Infrastructure which was bought between 24.10.2010 to 03.11.2010 for Rs.10,62,216/- and sold the same between 07.04.211 to 05.12.2011 for Rs.1 1,55,812/- and thus made modest short term capital gain of Rs.93,597/- which was duly offered for taxation in the return of income filed on 31.07.2012. Later on, on 31.03.2019 (time barring date of six (6) years), the AO had re-opened the assessment under 147 of the Act by issuance of notice u/s 148 of the Act. The AO relying merely on the DDIT(Inv.) report and taking note of the modus- operandi resorted by certain persons indulging in converting their black money through LTCG ignored the fact that the assessee a non­resident Canadian Citizen of Indian Origin has been regularly making investment in the share market through Portfolio Manager and has suffered huge loss in the year under consideration; and that the transaction of buying and sale of the shares of M/s. VAS happened within the few weeks and the profit made has been offered to taxation (STCG) in the returned filed. The AO has added the entire sale consideration u/s 68 of the Act which has been deleted by the Ld. CIT(A). Having gone through the overall facts of the case, we do not find any infirmity in the action of the Ld. CIT(A). This is a case wherein the Maxim- Res Ipsa loquitor-applies- meaning “Things speaks for itself”. Looking at the over-all facts it can be presumed that assessee has not indulged in any nefarious activity as alleged in the DDIT information of persons who traded in the shares of M/s. VAS. She is a Canadian Citizen of Indian Origin has suffered heavy losses to the tune of more than a crores of Rupees, and has made investment through Professional Portfolio Manager (recognized by BSE & NSE), so it cannot be presumed that she would indulge in money laundering for a mere short term capital gain of Rs.93,597/- (which has been offered to taxation) in the ROI filed on 3 1.07.2012. On the facts noted supra it is presumed that the assessee was an innocent/gullible regular investor in share market and has burned her fingers and made a modest gain of Rs.93,597/- which has been taxed. And the AO erred in again taxing on the basis of general investigation report which does not have any material against the assessee. It would be apt to remind ourselves that the maxim falsus in unus false in Omnibus” meaning ‘false in one thing false in everything’’ has no application in India. Merely because some person misused the share market to rig certain shares in the share market for nefarious purpose, cannot be the ground to draw adverse view against innocent regular investors like assessee. So we decline to interfere with the action of the Ld. CIT(A) who rightly deleted the addition made by the AO without an iota of evidence against the assessee and without being part of any wrong doing. So the revenue appeal is dismissed.

5. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on this 17/01/2023.