Kamlesh Gupta Vs Dy. CIT (ITAT Mumbai)
ITAT Mumbai held that in the absence of any evidence on allegation that some person provided the entry to convert unaccounted money for getting benefit of LTCG in the grab of exempt LTCG u/s 10(38) of the Income Tax Act the same cannot be accepted.
Facts-
A.O was of the view that the LTCG of Rs. 5,93,45,030/- that was claimed by the assessee as exempt u/s 10(38) of the Act did not merit acceptance. Backed by his aforesaid observations, the A.O held the sale proceeds of shares of Rs. 6,06,49,780/- as an unexplained cash credit u/s 68 of the Act. Also, the A.O holding a conviction that the assessee would have paid commission for facilitating the aforesaid transaction of bogus LTCG, thus, made a further addition of Rs.36,38,987/- i.e @6% of the impugned sale proceeds of Rs.6,06,49,780/-. Accordingly, the AO vide his order passed u/s 143(3) r.w.s 147, dated 27.12.2017 assessed the income of the assessee at Rs.6,84,06,690/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). Observing, that the gain of Rs.5,93,45,030/- derived by the assessee from the sale of share of M/s JMD Telefilms Industries Ltd. was derived from bogus and manipulated share prices which were nothing but unexplained investment/income of the asssessee that was converted under the garb of share market investment, the CIT(A) upheld the view taken by the A.O. Accordingly, the CIT(A) sustained the addition of Rs.5,93,45,030/- that was made by the A.O u/s 68 of the Act a/w the addition of Rs.36,68,987/- made by him u/s 69C of the Act.
Conclusion-
We may herein observe that at the stage of reopening of a case u/s 147 of the Act, the A.O is only required to have a cause or justification to know or suppose that income of the assessee chargeable to tax had escaped assessment and, no obligation is cast upon him to have finally ascertained the said fact by legal evidence or conclusion. Thus, we are of the considered view that the A.O had validly assumed jurisdiction u/s 147 of the Act and reopened the case of the assessee.
As regards the observations of the A.O that the information received from the Directorate of Investigation, Kolkata revealed the modus operandi that was adopted by the promoters/operators/brokers a/w the beneficiaries for obtaining bogus LTCG/STCL entries, we find that the same are only in the nature of general observations and the same on a standalone basis in the absence of any material/evidence proving that the assessee had colluded with the promoters/brokers/operators for laundering his unaccounted money in the garb of tax exempt LTCG, cannot justify drawing of any adverse inferences as regards the transaction of purchase/sale of shares in question by the assessee.
Held that in the absence of any evidence, whatsoever, to allege that money had changed hands between the assessee and the broker or any other person, or that some person provided the entry to convert unaccounted money for getting benefit of LTCG, the unsubstantiated claim of the department that the assesseee had taken recourse to a structured transaction for evading his taxes and laundering his unaccounted money in the garb of exempt LTCG u/s 10(38) of the Act, cannot be accepted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-21, Mumbai, dated 31.10.2019, which in turn arises from the order passed by the A.O u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟), dated 27.12.2016 for A.Y 2011- 12. The assessee has assailed the impugned order on the following effective grounds before us:
“GROUND NO. 1 – AGAINST REOPENING THE ASSESSMENT FOR THE YEAR UNDER APPEAL AND ORDER PASSED PURSUANT THERETO.
a) The Commissioner of Income-tax (Appeals) – 21, Mumbai [hereinafter referred to as “the CIT (A)”] has erred in upholding the reassessment proceedings initiated and conducted by the Assessing Officer (“the AO”) on the basis of “borrowed satisfaction” and the order passed by him, though there was no failure on the part of the appellant to disclose fully and truly all material facts.
b) The appellant respectfully submits that the AO initiated reassessment proceedings on the basis of suspicion, conjectures and surmises, without any concrete material or evidence to support the same and also without satisfying himself about reliability of the investigation report received by him from the Director of Investigation, Kolkata and applicability of the same to the facts in the case of the appellant.
c) The appellant, therefore, prays that the very basis of initiating the reassessment proceedings, being vague and unreliable, the said proceedings be held as void ab initio and order passed pursuant thereto be quashed as bad in law.
GROUND NO. 2 – AGAINST DENIAL OF S. 10 (38) EXEMPTION FOR LONG-TERM CAPITAL GAINS OF Rs.5,93,45,030/- FROM SALE OF QUOTED SHARES OF JMD TELEFILMS LIMITED
a) The CIT (A) has erred in confirming denial of exemption under Section 10(38) of the Act claimed by the appellant, though all the conditions stated in that section are satisfied, by alleging “bogus and manipulated” share prices without leading any evidence in support of such assumption and/or suspicion.
b) The appellant humbly submits that the transactions of investment in the shares of JMD Telefilms Limited were genuine and real ones, carried out on the recognised stock exchange and executed through proper and valid D’Mat Accounts. Therefore, there can be no doubt about genuineness of such transactions, much less on the basis of any vague and general
c) The appellant prays that since the capital gain had arisen from sale of the shares in which the appellant had actually invested and the transactions were supported by various third party evidences, it can by no stretch of imagination be regarded as bogus or manipulated and since all the conditions of section 10 (38) of the Act are satisfied, the capital gain of Rs.5,93,45,030/- earned from such sale be held as eligible for exemption under that section.
GROUND NO. 3 – AGAINST ADDITION OF Rs. 6,06,49,780/- UNDER SECTION 68 OF THE ACT RELATING TO PROCEEDS FROM SALE OF SHARES IN JMD TELEFILMS LIMITED
a) The CIT (A) has erred in confirming the addition made by the AO for the entire amount of proceeds received by the appellant from sale of shares in JMD Telefilms Limited as unexplained cash credit under Section 68 of the Act.
b) The appellant vehemently submits that the addition under Section 68 can be made only if the appellant offers no explanation or the explanation offered by him is not satisfactory. The view taken by the AO is purely based on suspicion, conjecture and surmises, which is not supported by any concrete evidence and without proper appreciation of the explanation offered by the appellant.
c) The appellant, therefore, prays that the addition of Rs. 6,06,49,780/- for the proceeds received on sale of shares in JMD Telefilms Limited be deleted, as the same are properly explained and the assumption of the AO is not sustainable on facts and in law.
GROUND NO. 4 SECTION 69C OF THE ACT IN RESPECT OF ALLEGED “COMMISSION PAID” FOR SALE OF THE SHARES IN JMD TELEFILMS LIMITED
a) The CIT (A) has erred in disallowing Rs. 36,38,987/- as alleged commission for sale of shares in JMD Telefilms Limited, though no such commission is actually paid by the appellant nor has he claimed any such deduction.
b) The appellant very respectfully submits that the AO has disallowed an “imaginary commission payment” for sale of the shares based on suspicion, conjectures and surmises. The sale transactions were carried out by the appellant through Motilal Oswal Securities Limited, the well-known broker registered with recognised stock exchanges and their brokerage/commission is duly charged in their bills which fact is totally ignored. The appellant has not paid any other amount to them or any other party as alleged. Since there is no valid basis or concrete evidence for his assumption about payment of commission for sale of the said shares, such disallowance is not sustainable – on facts and in law.
c) In the above background, the appellant prays that the disallowance of Rs.36,38,987/- as the imaginary expenditure (by way of commission for sale of the shares in JMD Telefilms Limited), which is neither paid nor claimed by the appellant, be deleted.
GROUND NO. 5 – AGAINST LEVY OF INTEREST OF Rs.1,60,35,802/- UNDER SECTION 234B OF THE ACT
a) The CIT (A) has erred in confirming interest charged under Section 234B of the Act.
b) The appellant politely submits that the denial of exemption under Section 10(38) of the Act and additions made by the AO and sustained by the CIT (A) could never have been imagined or predicted by the appellant. Hence, the appellant could not have made payment of advance tax with reference to those amounts.
c) The appellant further submits that commission, if paid, would have been subject to deduction of income-tax at source under Section 194H of the Act and, consequently, the tax relevant to that amount cannot constitute default in payment of advance tax. Therefore, interest under Section 234B on the amount of tax relevant to that amount cannot be levied.
d) Further, the appellant is confident that the issues taken up by him in this appeal will be decided in his favour. In that case there will not be any default in payment of advance tax on his part. Consequently, there will be no case for levy of interest under section 234B of the Act.
e) The appellant, therefore, prays that since the appellant has not defaulted in payment of advance tax, which has to be paid on the estimated “current income” as contemplated in section 209 of the Act {such denial of exemption and additions/disallowances, being not possible to estimate when the advance tax was payable), the charge of interest under section 234B, charged by the AO, be kindly deleted.”
2. Briefly stated, the assessee had filed his return of income for A.Y 2011-12 on 30.01 .2012, declaring an income of Rs.41,17,920/-. The return of income filed by the assessee was processed as such u/s 143(1) of the Act. Subsequently, on the basis of information gathered by the A.O that the investigations undertaken by the Directorate of Investigation, Kolkata, inter alia, revealed that the assessee, viz. Shri Kamalesh N. Gupta as a beneficiary had obtained bogus entries of Long Term Capital Gain (LTCG) of a scrip viz. M/s JMD Telefilms Industries Ltd., a penny stock company, the case of the assessee was reopened u/s 147 of the Act. Notice u/s 148 was issued by the A.O on 31.03.2017. In response, the assessee vide his letter dated 25.04.2017 stated that his original return of income filed on 30.01 .2012 may be treated as a return filed in response to the aforementioned notice issued u/s 148 of the Act. As requested by the assessee, the A.O vide his letter dated 30.05.2017 made available to him the copy of the „reasons to believe‟ on the basis of which his case was reopened u/s 147 of the Act. Objecting to the validity of the jurisdiction assumed by the A.O for reopening of his case the assessee vide a letter dated 16.06.2017 filed his objections. However, the A.O not finding favour with the objections raised by the assessee qua the validity of the reassessment proceedings dismissed the same vide his letter dated 05.07.2017.
3. During the course of the assessment proceedings, it was observed by the A.O that the assessee in his return of income had claimed LTCG on sale of shares of a scrip, viz. M/s JMD Telefilms Industries Ltd. (formerly known as Avtar Finance and Management Consultants) and subsequently known as M/s JMD Ventures Ltd. (Scrip Code: 511092) as shown below:
