Case Law Details
Naveen Kishor Mohnot Vs ITO (ITAT Mumbai)
ITAT Mumbai held that disallowance of short term capital loss incurred on sale of shares by mechanically applying the information received from investigation wing is unsustainable in law.
Facts- Based on the information received from the Investigation Wing that the assessee has dealt in sale and purchase of shares of M/s. VAS INFRASTRUCTURE LIMITED, which is a penny stock company. Accordingly, the case of the assessee was reopened by issue of notice u/s. 148 of the Act and served on the assessee. Assessee submitted the return of income in compliance to the notice u/s. 148 of the Act. The assessee was provided with the reasons recorded for initiation of proceedings u/s. 147 of the Act. Subsequently notice u/s. 143(2) and 142(1) were issued and served on the assessee and in response assessee submitted all the relevant information.
Assessee derives income from salary, business, speculation income, capital gain and income from other sources. AO observed that during the present A.Y., assessee purchased 2078 shares of M/s. VAS Infrastructure Limited for a consideration of ₹2,14,550/-. He observed that assessee claimed loss of ₹.46,964/- being short-term Capital loss.
Based on the information from Directorate of Investigation in relating to the scrip AO treated the whole sale proceeds of ₹.2,14,390/- as unexplained cash credit u/s. 68 of the Act. Accordingly, he rejected the loss claimed by the assessee and also he made the addition of ₹.2,14,390/-.
Conclusion- The Assessing Officer mechanically applied the informations received from investigation wing and proceeded to disallow the loss claimed by the assessee as well as proceeded to make the sale proceeds as undisclosed income.
We are inclined to delete the addition made by the Assessing Officer u/s. 68 of the Act and direct the Assessing Officer to allow the short term capital loss claimed by the assessee incurred during the year. Accordingly, appeal filed by the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 01.01.2022 for the A.Y.2011-12.
2. At the outset, we observe that the present appeal is filed by the assessee with a delay of 338 days and assessee also filed an affidavit in this regard and prayed for condonation of delay. In the affidavit assessee has submitted as under: –
“I Shri Naveen Kishor Mohnot, aged about 51 years residing at Monami ‘A’, 3rd Floor, Behind Chandan Cinema, Juhu, Mumbai 400049, hereby state and depose as under,
That I am regularly assessed to Tax in my individual capacity under PA No. ABGPJ1360D.
That in my case assessment for A.Y. 2011-12 was completed u/s 143(3) r.w.s. 147 of the Act on 18-12-2018 against which I had filed an appeal before the Id. CIT(A) on 02-01-2019. Which was decided by the Hon ‘ble CIT (A) vide Order dtd 01-01-2022.
The aforesaid order was passed ex parte by Honorable CIT (A) which I had not received. It was noticed by me when I received the Show cause notice u/s 271(1)(c) from the Income Tax Department. It was then I realised that the Order u/s 250 was already passed without any hearing
Once I came to know, I appointed the Chartered Accountant and compiled the data and documents from the earlier Chartered Accountant and file the appeal which is delayed on such account.
Since the delay caused is not due to any neglect but due to circumstances beyond my control I depose this statement to support my application for delay in filing appeal before the Hon ‘ble ITAT Mumbai to condone the delay and hear my appeal on merit.
Whatever is stated herein is true to the best of my knowledge and belief.”
3. DR objected to the submissions of the assessee on delay condonation and he submitted that all the relevant details are already available in ITR portal, therefore the submissions of the assessee cannot be relied upon.
4. Considered the submissions of both parties, we observe that in the case of M/s. Midas Polymer Compounds Pvt. Ltd., v. ACIT in ITA.No. 288/Coch/2017 the Coordinate Bench of the Tribunal has considered the issue of condonation of delay and by following various judicial precedents along with the decision of the Hon’ble Supreme Court in the case of Collector, Land Acquisiont v. Mst Katiji and ors. (167 ITR 471) condoned the delay of 2819 days observing as under: –
“6. We have heard the rival submissions and perused the record. There was a delay of 2819 days in filing the appeal before the Tribunal. The assessee has stated the reasons in the condonation petition accompanied by an affidavit which has been cited in the earlier para. The assessee filed an affidavit explaining the reasons and prayed for condonation of delay. The reason stated by the assessee is due to inadvertent omission on the part of Shri Unnikrishnan Nair N, CA in taking appropriate action to file the appeal. He had a mistaken belief that the appeal for this year was filed by the assessee as there was separate Counsel to take steps to file this appeal before the ITAT. Therefore, we have to consider whether the Counsel’s failure is sufficient cause for condoning the delay. The Madras High Court considered an identical issue in the case of Sreenivas Charitable Trust v. Dy. CIT (280 ITR 357) and held that mixing up of papers with other papers are sufficient cause for not filing the appeal in time. The Madras High Court further observed that the expression “sufficient cause” should be interpreted to advance substantial justice. Therefore, advancement of substantial justice is the prime factor while considering the reasons for condoning the delay.
6.1 On merit the issue is in favour of the assessee. But there is a technical defect in the appeal since the appeal was not filed within the period of limitation. The assessee filed an affidavit saying that the appeal was not filed because of the Counsel’s inability to file the appeal. The Revenue has not filed any counter affidavit to deny the allegation made by the assessee. While considering a similar issue the Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471) laid down six principles. For the purpose of convenience, the principles laid down by the Apex Court are reproduced hereunder:
(1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late (2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties.
(3) ‘Every day’s delay must be explained’ does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational, commonsense and pragmatic
(4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non deliberate delay.
(5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.
(6) It must be grasped that the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
6.2 When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of nondeliberate delay. In the case on our hand, the issue on merit regarding allowability of deduction u/s. 80IB of the Act was covered in favour of the assessee by the binding Judgment of the jurisdictional High Court. Moreover, no counter-affidavit was filed by the Revenue denying the allegation made by the assessee. It is not the case of the Revenue that the appeal was not filed deliberately. Therefore, we have to prefer substantial justice rather than technicality in deciding the issue. As observed by Apex Court, if the application of the assessee for condoning the delay is rejected, it would amount to legalise injustice on technical ground when the Tribunal is capable of removing injustice and to do justice. Therefore, this Tribunal is bound to remove the injustice by condoning the delay on technicalities. If the delay is not condoned, it would amount to legalising an illegal order which would result in unjust enrichment on the part of the State by retaining the tax relatable thereto. Under the scheme of Constitution, the Government cannot retain even a single pie of the individual citizen as tax, when it is not authorised by an authority of law. Therefore, if we refuse to condone the delay, that would amount to legalise an illegal and unconstitutional order passed by the lower authority. Therefore, in our opinion, by preferring the substantial justice, the delay of 2819 days has to be condoned.
6.3 The next question may arise whether 2819 days was excessive or inordinate. There is no question of any excessive or inordinate when the reason stated by the assessee was a reasonable cause for not filing the appeal. We have to see the cause for the delay. When there was a reasonable cause, the period of delay may not be relevant factor. In fact, the Madras High Court in the case of CIT v. K.S.P. Shanmugavel Nadai and Ors. (153 ITR 596) considered the delay of condonation and held that there was sufficient and reasonable cause on the part of the assessee for not filing the appeal within the period of limitation. Accordingly, the Madras High Court condoned nearly 21 years of delay in filing the appeal. When compared to 21 years, 2819 days cannot be considered to be inordinate or excessive. Furthermore, the Chennai Tribunal by majority opinion in the case of People Education and Economic Development Society (PEEDS) v. ITO (100 ITD 87) (Chennai) (TM ) condoned more than six hundred days delay. It is pertinent to mention herein that the view taken by the present author in that case was overruled by the Third Member.
6.4 The Madras High Court in the case of Sreenivas Charitable Trust (supra) held that no hard and fast rule can be laid down in the matter of condonation of delay and the Court should adopt a pragmatic approach and the Court should exercise their discretion on the facts of each case keeping in mind that in construing the expression “sufficient cause” the principle of advancing substantial justice is of prime importance and the expression “sufficient cause” should receive a liberal construction. Therefore, this Judgment of the Madras High Court (supra) clearly says that in order to advance substantial justice which is of prime importance, the expression “sufficient cause” should receive a liberal construction. In this case, the issue on merit regarding granting of deduction u/s. 80IB was covered in favour of the assessee by the Judgment of the jurisdictional High Court. Therefore, for the purpose of advancing substantial justice which is of prime importance in the administration of justice, the expression “sufficient cause” should receive a liberal construction. In our opinion, this Judgment of the jurisdictional High Court is also squarely applicable to the facts of this case. A similar view was taken by the Madras High Court in the case of Venkatadri Traders Ltd. v. CIT (2001) 168 CTR (Mad) 81 : (2001) 118 Taxman 622 (Mad).
6.5 The Mumbai Bench of this Tribunal in the case of Bajaj Hindusthan Ltd. v. Jt. CIT (AT) (277 ITR 1) has condoned the delay of 180 days when the appeal was filed after the pronouncement of the Judgment of the Apex Court. Furthermore, the Revenue has not filed any counter-affidavit opposing the application of the assessee for condonation of delay. The Apex Court in the case of Mrs. Sandhya Rani Sarkar vs. Smt. Sudha Rani Debi(AIR 1978 SC 537) held that non-filing of affidavit in opposition to an application for condonation of delay may be a sufficient cause for condonation of delay. In this case, the Revenue has not filed any counter-affidavit opposing the application of the assessee, therefore, as held by the Apex Court, there is sufficient cause for condonation of delay. The Supreme Court observed that when the delay was of short duration, a liberal view should be taken. “It does not mean that when the delay was for longer period, the delay should not be condoned even though there was sufficient cause. The Apex Court did not say that longer period of delay should not be condoned. Condonation of delay is the discretion of the Court/Tribunal. Therefore, it would depend upon the facts of each case. In our opinion, when there is sufficient cause for not filing the appeal within the period of limitation, the delay has to be condoned irrespective of the duration/period. In this case, the non-filing of an affidavit by the Revenue for opposing the condonation of delay itself is sufficient for condoning the delay of 2819 days
6.6 In case the delay was not condoned, it would amount to legalise an illegal and unconstitutional order. The power given to the Tribunal is not to legalise an injustice on technical ground but to do substantial justice by removing the injustice. The Parliament conferred power on this Tribunal with the intention that this Tribunal would deliver justice rather than legalise injustice on technicalities. Therefore, when this Tribunal was empowered and capable of removing injustice, in our opinion, the delay of 2819 days has to be condoned and the appeal of the assessee has to be admitted and disposed of on merit.
6.7 In view of the above, we condone the delay of 2819 days in filing the appeal and admit the appeal for adjudication.”
5. Respectfully following the above said decision and for the sake of overall justice we condone the delay and admit the appeal for
6. On merits, we observe that assessee has filed its return of income on 29.07.2011 declaring total income of ₹.6, 67,900/-. Based on the information received from the Investigation Wing that the assessee has dealt in sale and purchase of shares of M/s. VAS INFRASTRUCTURE LIMITED, which is a penny stock company. Accordingly, the case of the assessee was reopened by issue of notice u/s. 148 of the Act and served on the assessee. Assessee submitted the return of income in compliance to the notice u/s. 148 of the Act. The assessee was provided with the reasons recorded for initiation of proceedings u/s. 147 of the Act. Subsequently notice u/s. 143(2) and 142(1) were issued and served on the assessee and in response assessee submitted all the relevant information.
7. Assessee derives income from salary, business, speculation income, capital gain and income from other sources. The Assessing Officer observed that during the present assessment year assessee purchased 2078 shares of M/s. VAS Infrastructure Limited for a consideration of ₹.2,14,550/-. He observed that assessee claimed loss of ₹.46,964/- being short-term Capital loss. Assessing Officer in the Assessment Order discussed various findings of the Investigation Wing on the scrips relating to M/s. VAS Infrastructure Limited and the same is discussed in the Assessment Order at Page No. 6 to 12 of the Assessment Order. Based on the informations from Directorate of Investigation in relating to the scrip the Assessing Officer treated the whole sale proceeds of ₹.2,14,390/- as unexplained cash credit u/s. 68 of the Act. Accordingly, he rejected the loss claimed by the assessee and also he made the addition of ₹.2,14,390/-. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and made a detailed submission, for the sake of clarity it is reproduced below: –
“…. The assessee had purchased 2078 number of shares of VAS INFRA STRUCTURE LIMITED resulting total purchase cost of Rs.261354 from M/s Emkay Global Financial Services Ltd. and M/s HDFC Securities Ltd. The said shares were sold by assessee in the same year (A.Y. 2010-11) for sale consideration of Rs.2,14,390/- after payment of Securities Transaction Tax (STT). As all the shares were held the assessee for less than one year there has been short term capital loss of Rs.46,964/-.In the assessment order passed u/s 143(3), the ld. A.O. has treated the short term capital loss of Rs.46,964/- as well as the sale proceeds of Rs. 2, 14,390/- as accommodation entries. The A.O. has disallowed the losses (STCL) & added the entire amount of sale consideration to the assesses income by which my assessed income has increased.
The bank interest amounting to Rs.9,799/- has not been shown in computation, same has been added to the total income by A.O.
I have upheld that I have produced copies of bills issued by M/s Emkay Global Finance Services LTD & had also demonstrated the purchase and sale of shares over a period of time. In my opinion, the Assessing Officer has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee The assessee has also produced best possible evidence to support its claim. Consequently the addition made by the Assessing Officer cannot be sustained. As per Hon ‘ble Jurisdictional High Court in the case cited as CIT Vs Vishal Holding and Capital Pvt. Ltd. vide order dated 9th August 2010.
Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation.
The assessee is not having any intention to book bogus loss as the assesse itself is having various carry forward losses which is not yet been set-off till date, why would assessee be indulge in such transaction to create additional loss as it would be resulting in addition to previous carry forward losses which cannot be set off, As AO is claiming that assessee is dealing in such transaction to evade payment of taxes which is not correct as the assessee cannot evade payment of tax with STCL when he is having earlier carry forward loss, even if there would be any income or gain it would be first setoff against carry forward loss.
The assessee is dealing with such brokers from years and their dealings is in around lakhs why would will be interested in creating loss of Rs 46,964/- against purchase and sale in lakhs, if the intention of the assessee was really to evade tax payment by booking bogus loss he would have done it resulting into lakhs and not the small amount of Rs. 46,964, The addition of sale proceeds amounting to Rs. 2,14,390 is not justifiable as it is one sided approach as the equity shares sold were purchased in the same year, only sale proceeds were added to the income & what about purchases. Ideally & currently only differences needs to be considered. When ITO had not rejected the purchase, he must not reject the sales. ITO was not able to prove receipt/payment in cash. No addition needs to be made on more imaginations. The whole transaction including purchase & sale of shares are routed through banking channels and have not been opened in the name of the dummy person.”
8. After considering the submissions of the assessee, Ld.CIT(A) dismissed the appeal filed by the assessee with the following observations:-
“2.3 I have gone through the submission of the assessee and perused the assessment order. As per the above facts, VAS Infrastructure Private Limited is a penny stock. A group of operators, intermediatories were active in this stock in the stock exchange to assist interested persons to convert their cash into short term capital gain/loss as per their requirement. There were an investigation by DIT(Inv.) Kolkata and Ahmedabad on the modus operandi of earning bogus gains/loss through penny stocks. The facts have come out that after the interested persons bought these shares, its prices were artificially moved up and down and when the desired price were reached an exit opportunity is provided to the shareholder to enable him earning of profit or incurring of loss. If such exit opportunity is not provided by the operator who were closely holding the share, the investor is stuck and he cannot sell the share as he will not get a buyer. In this particular case price of share increased from 45.80 in April 2010 to 123.05 in December 2010 i.e., within a short period of 8 months. This price rise has happened without there being any positive change in the business financials of the company. EPS of the share is negligible, and net worth is very low. Under such circumstances the increase in the share price could not be explained. Appellant has contended that she has purchased these shares through registered brokers therefore, the transactions cannot be doubted. I find that merely entering into transaction through registered brokers is not sufficient to establish the genuineness of the transaction. She has no knowledge of the activities of company whereas she is a regular dealer in shares. The assessee could not reply that for what motive she has purchased the shares which is a penny stock and which had no scope of rising. Appellant has contended that transactions were done through banking channel and registered share broker, I note that in order to prove the transaction as genuine, the form is important but just because form and formalities have been observed, the transaction does not per se become genuine. Appellant has not explained on what criteria she has picked up these shares for purchase. Whether its financials were good, whether there was some information that there would be some major break through in business of the company. Answers to all these questions are negative. Therefore, the loss cannot be held as genuine. Appeal is dismissed.”
9. Aggrieved assessee is in appeal before us raising following grounds in its appeal: –
“1. Under the facts and circumstances of the case the CIT (A) has erred in confirming the addition made by the Assessing Officer amounting to 2,14,390/- as unexplained cash credit u/s 68 of Income Tax Act, 1961.
2. Under the facts and circumstances of the case the CIT (A) has erred in confirming the disallowance made by the Assessing Officer of Short Term Capital Loss of Rs. 46,964/- on sale of shares of VAS Infrastructure Ltd.”
10. At the time of hearing, Ld. AR of the assessee submitted that assessee has purchased all the shares from the recognized stock exchange and also sold the same in the recognized stock exchange and through authorised broker. During the year, assessee has purchased and also sold the same within the same year and suffered a loss of ₹.46,964/- . He submitted that merely because the scrip is under scanner as penny stock and by merely relying on the report from investigation wing, the Assessing Officer has rejected the loss claimed by the assessee and also made the addition of sale proceeds as undisclosed income u/s. 68 of the Act without appreciating the fact in the case of the assessee. In this regard, he relied on the decision of the Coordinate Bench in the case of Rajiv Rameshchander v. Income Tax Officer in ITA.No. 1528/Mum/2020 dated 31.01.2023.
11. On the other hand, Ld. DR relied on the orders of the lower
12. Considered the rival submissions and material placed on record, we observe that during the current Assessment Year assessee has purchased the scrip of M/s. VAS Infrastructure Limited and subsequently sold the same within the same year from the recognized stock exchange and also through authorised agent. It is also submitted that all these transactions were through banking channels only and in that process assessee has suffered loss of ₹.46,964/-. The Assessing Officer mechanically applied the informations received from investigation wing and proceeded to disallow the loss claimed by the assessee as well as proceeded to make the sale proceeds as undisclosed income. The similar issue was dealt with by the Coordinate Bench in the case of Rajiv Rameshchander v. Income Tax Officer (supra) and decided the issue in favour of the assessee, for the sake of clarity it is reproduced below: –
“9. It was also brought to the notice of the AO that the assessee has purchased and sold the shares during the year under consideration and there is no Short Term Capital Gain(STCG)/Long Term Capital Gain (LTCG)/Short Term Capital loss claimed in the return. Thus, according to the assessee the transaction carried out by the assessee in regard to the share of M/s. SSTL are genuine and bonafide and therefore fully allowable. However, according to assessee, the AO/Ld. CIT(A) has not appreciated the facts in the right perspective and has disallowed the business loss of the assessee while trading in this scrip. It is found that Assessee is a trader in shares which fact has been discerned from the facts discussed (supra). Therefore, the shares traded are his stock-in-trade. And once assessee is found to be a trader, the loss incurred during business need to be allowed as business loss. And therefore the AO is directed to allow the business loss of Rs.41,64,684/-.”
13. Respectfully following the above said decision, we are inclined to delete the addition made by the Assessing Officer u/s. 68 of the Act and direct the Assessing Officer to allow the short term capital loss claimed by the assessee incurred during the year. Accordingly, appeal filed by the assessee is allowed.
14. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 05th April, 2023
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