Case Law Details
ITO Vs Kamalesh Mohandas Lakhwani (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai recently delivered a significant ruling in the case of ITO vs Kamalesh Mohandas Lakhwani. This case questioned the validity of additions under Section 69B of the Income Tax Act, based solely on suspicious information. Here, we offer a detailed subheading-wise analysis of the case, scrutinizing every aspect to give you a well-rounded understanding.
Detailed Analysis
Grounds for Appeal
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) which deleted an addition of Rs. 16,53,593 made under Section 69B of the Income Tax Act. This was in relation to shares traded by the assessee, Kamalesh Mohandas Lakhwani, in VAS Infrastructure Ltd, alleged to be a penny stock.
Basis of Reopening Case
The case was reopened based on information received from DDIT (Investation), alleging that Lakhwani traded in shares of VAS Infrastructure Ltd, a supposed penny stock. However, the ITAT noted that this alone cannot be the basis for making additions under Section 69B.
The Assessee’s Defense
Lakhwani contended that he has been a regular investor in shares, investing a significant sum in various companies other than VAS Infrastructure Ltd. Furthermore, he submitted all the supporting documents to substantiate the genuineness of the transactions.
Tribunal’s Observations
The ITAT observed that the assessee had indeed furnished all supporting documents and invested in other shares as well. It was also noted that the assessee had not made any offline purchases and did not claim any Long Term Capital Gains (LTCG), but merely incurred a nominal loss.
Precedents and Decisions
While the Revenue relied on certain case laws to support its position, the Tribunal stated that these cannot be binding precedents. It emphasized that mere suspicion cannot be the basis for additions under Section 69B in the absence of material evidence.
Conclusion
The ITAT Mumbai in the case of ITO vs Kamalesh Mohandas Lakhwani ruled that mere suspicious information cannot be a ground for making additions under Section 69B of the Income Tax Act. This landmark ruling stresses the importance of material evidence over mere suspicion, thus offering valuable insights into the interpretation of tax laws in India.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the Revenue and cross objection by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2012-13.
2. The Revenue has challenged the ld. CIT(A)’s order in deleting the addition of Rs.16,53,593/- made u/s. 69B of the Act in respect of shares traded by the assessee in VAS Infrastructure Ltd. alleged to be a penny stock.
3. The brief facts are that the assessee is an individual and is earning brokerage income as estate agency and has also been making investments/trading in shares of various companies by stock exchange through recognized brokers. The assessee had filed his return of income dated 30.08.2012, declaring total income at Rs.7,68,681/-. The assessee’s case was reopened u/s. 147 of the Act vide notice u/s. 148 of the Act dated 20.03.2019 for the reason that the information received from DDIT (Investigation), Unit 6(2), Mumbai that the assessee has traded in shares of M/s. Vas Infrastructure Ltd. which is alleged to be a penny stock scrip providing bogus long term capital gain (LTCG for short) to various beneficiaries. In response to the said notice, the assessee filed his return of income dated 04.11.2019.
4. The ld. Assessing Officer (‘A.O.’ for short) vide assessment order dated 26.11.2019 passed u/s. 143(3) and 147 of the Act determined the total income of the assessee at Rs.24,22,181/- by making an addition of Rs.16,53,593/- being the unexplained investment u/s. 69B of the Act made in the shares of M/s. Vas Infrastructure Ltd.
5. The assessee was in appeal before the ld. CIT(A) who deleted the impugned addition made by the A.O. on the ground that the assessee has not made any offline purchases and there was no LTCG and only a short rotational transaction resulting in short term capital gain (STCG for short) and short term capital loss (STCL for short) and that too a nominal loss of Rs.51,279/-.
6. The Revenue is in appeal before us, challenging the impugned order of the ld. CIT(A).
7. The learned Departmental Representative (‘ld.DR’ for short) stated that the Investigation Wing has identified the said scrip as a penny stock and further stated that the share price of the scrip of M/s. Vas Infrastructure Ltd. has been rigged to provide accommodation entries to all the beneficiaries who have invested in the said share. The ld. DR further stated that the financials of M/s. Vas Infrastructure Ltd. does not substantiate the huge share price movement clearly indicating the fact that it was a penny stock for the purpose of providing accommodation entries by way of LTCG/STCG/STCL. The ld. DR relied on the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Swati Bajaj (IA No.GA/1/2022 In ITAT/6/2022 vide order dated 28.03.2022) and also relied on the order of the A.O.
8. The learned Authorised Representative (‘ld. AR’ for short) for the assessee, on the other hand, contended that the assessee has been a regular investor in shares and relied on pg. no. 61 of the paper book for the details containing the investment made by the assessee in shares. The ld. AR further pointed out the assessee has invested only Rs.16,53,593/- in M/s. Vas Infrastructure Ltd. during the year under consideration but had made a huge investment of around Rs.8 crores in various other scrips other than M/s. Vas Infrastructure Ltd. The ld. AR further stated that the assessee has furnished all the details such as the contract notes issued by Lalkar Securities Ltd. along with STT, ledger account of the broker, demat account evidencing the said transaction and various other details contemplating the said transaction. The ld. AR further to this relied on the decision of the Tribunal in the case of Genuine Finance Pvt. Ltd. vs. DCIT (in ITA No. 221/Ahm/2021 vide order dated 28.10.2022) and ITO vs. Ronak Iqbal Lakhani (in ITA No.835/Mum/2022 vide order dated 17.01.2023), where the Tribunal has deleted the addition made on the other assessee who has traded in M/s. Vas Infrastructure Ltd. The ld. AR relied on the order of the ld. CIT(A), deleting the impugned addition.
8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has invested in the script of M/s. Vas Infrastructure Ltd. amounting to Rs.16,04,274/- on various dates ranging from June 2011 to August 2011 and has also sold these shares within a short span of time with lesser than one month and had earned STCG/STCL during the said period. The A.O. during the assessment proceeding has verified the share price movement of the said scrip which is listed in Bombay Stock Exchange and had examined the share price ranging from Rs.6.50 to a high of Rs.173.40 between 06.04.2009 and 10.11.2010. The A.O. further observed that the share price fell back to Rs.37.70 on 08.03.2012 and further had come down to Rs.12.90 and so on. The A.O. held that the assessee’s investment in these shares was merely to avail accommodation entries by way of bogus LTCG/STCG/STCL. The ld. CIT(A), on the other hand, observed that the assessee had traded in these shares through online mode through BSE registered broker M/s. Lalkar Securities P. Ltd. and that all the payments have been made through the running current account to the said broker. The ld. CIT(A) further held that all these transactions are STT and brokerage paid which has been duly substantiated by contract notes furnished by the assessee. The ld. CIT(A) further held that there was no LTCG earned by the assessee in these transactions and only a minuscule loss of Rs.51,279/- declared by the assessee.
10. From the above observation, we are of the considered view that the assessee has furnished all the supporting documentary evidences to substantiate the genuinity of the said transaction. It is also evident that the assessee has not only invested in the scrip of M/s. Vas Infrastructure Ltd. but has also made investment of huge sum in other scrips as well. The fact that the assessee has not made any off line purchases and has not claimed LTCG but has merely incurred a nominal loss of Rs.51,279/-, in our view, cannot be a case of doubtful investment in penny stock. The A.O. has also not made any enquiry as to the payments made by the assessee to the recognized broker nor has the A.O. brought on record any material evidence to show that it was a mere bogus transaction except for the information received from DDIT (Investigation) that M/s. Vas Infrastructure Ltd. was a penny stock. Even otherwise, if it is assumed that M/s. Vas Infrastructure Ltd. was a penny stock, we find no reason to hold the assessee liable for having invested in the said share in the absence of any corroborative evidence. The ld. AR has placed reliance on the decision of the Tribunal where similar additions have been deleted in case of investment made in M/s. Vas Infrastructure Ltd. We are not in agreement with this submission of the ld. AR for the reason that the decision in other cases of penny stock cannot be a binding precedent in this case, as the facts of each case has to be considered in isolation with regard to the evidences available in that particular case. We are also conscious of the fact that mere suspicion that the assessee has invested in alleged penny stock scrip cannot be made basis of addition u/s. 69B of the Act. In the absence of any material evidences to corroborate the information received from DDIT that M/s. Vas Infrastructure Ltd. is a penny stock, we find no justification in upholding the addition made by the A.O. On this note, we find no infirmity in the order of the ld. CIT(A). Hence, the grounds raised by the Revenue is dismissed
CO No. 28/Mum/2023
11. The assessee has filed the cross objection challenging the notice issued by the A.O. u/s. 148 of the Act and the subsequent assessment order u/s. 143 r.w.s. 147 of the Act to be without jurisdiction and invalid. The assessee has also challenged the ground that the ld. CIT(A) has failed to adjudicate this ground during the first appellate proceeding. As the addition made by the A.O. was already deleted by the ld. CIT(A) and the same was also observed by us as above, we deem it fit to dismiss the cross objection raised by the assessee as relief has already been granted to the assessee on the merits of the case.
12. In the result, the appeal filed by the Revenue and the cross objection filed by the assessee are dismissed.
Order pronounced in the open court on 07.08.2023
