Case Law Details

Case Name : Sangitaben Chetankumar Doshi Vs ITO (ITAT Ahmedabad)
Appeal Number : ITA No. 2041 /Ahd/2018
Date of Judgement/Order : 22/06/2022
Related Assessment Year : 2015-16

Sangitaben Chetankumar Doshi Vs ITO (ITAT Ahmedabad)

At the outset, the counsel for the assessee submitted that inadequate opportunity of hearing was provided by the Ld. CIT(Appeals) in appeal proceedings and the assessee was not granted an opportunity of presenting his case on merits and the order was passed on ex-parte basis without allowing assessee to present his case. The counsel for the assessee argued that there is no specific information in respect of the involvement of the assessee in engaging in any sham transaction and the order passed by the Revenue is based on conjectures and surmises. The assessee has not been involved in any ingenuine transaction and he has validly held the shares for more than 12 months before disposing of the same. All the transactions were made through banking channels and there is no allegation that the assessee has been involved in any accommodation entry. The Ld. DR relied on the observations made by the ld. CIT(A) in his order.

We have heard the rival contentions and perused the material on record. We note that the Ld. CIT(Appeals) passed ex parte order confirming the additions made by the Ld. Assessing Officer. In our view, in the interests of justice, we are restoring the matter to the Ld. CIT(Appeals) for adjudication of the case on merits after giving opportunity of hearing to the assessee. The Ld. DR has also not objected to the matter being set aside to Ld. CIT(Appeals) for adjudication on merits.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-2, Ahmedabad in Appeal no. CIT(A)-2/10203/ITO, S. K. Wd. 3, HMT/2017-18 vide order dated 31/07/2018 passed for the assessment year 2015-16.

2. The assessee has raised the following grounds of appeal:-

“1. The learned OT (A) has erred in law and on facts in confirming the addition of Rs. 11,43,000/- on account of disallowance of Long Term Capital Gain [LTCG] on sale of shares of Kappac Pharma Limited merely on surmises and conjectures and while solely relying upon general and vague information in the report received from Kolkata Investigation Wing, which is not case specific and thus highly irrelevant and not applicable to the appellant’s case.

2. The learned GTT (A) has failed to appreciate the fact that the AO has miserably failed to bring on record any cogent material/evidences which could establish/prove that the transactions of sale of shares of Kappac Pharma Limited and LTCG earned thereon is a sham transaction and in the nature of accommodation entry liable to be disallowed along with an opportunity of cross-examination of persons whose statements have been relied upon and mentioned in the report received. In view of the said fact, the impugned addition requires to be deleted, the same being in flagrant violation of the principles of natural justice and equity.

3. The learned CIT(A) has erred in not considering and appreciating the comprehensive submissions filed before him justifying the genuineness of the transactions and LTCG earned thereon more particularly the fact that the acquisition and sale of shares of Kappac Pharma Limited is supported by vaiid documents, the sale consideration has been received through banking channels, the shares have been held for approx. 32 months prior to the date of sale including 14 months in dematerialized form, the delivery of shares is through demat A/c., the existence of the party from whom the appellant has purchased or the broker through whom the shares are sold has not been disputed, the STT and other Govt. levies on sale of shares have been duly paid and thus all the conditions laid down under the provisions of law for claiming exemption u/s 10(38) of the Act have been duly fulfilled. The impugned addition of Rs.11,43,000/-thus being based on mere surmises and conjectures is wholly unjustified and bad in law.

4. The learned CTT (A) has failed to appreciate that the observations/findings on which the addition is made by the AO were not subject matter of the show-cause given by him. The AO in the show cause notice in fact had indirectly accepted the genuineness of the Capital Gain but had proposed to treat it as Short Term Capital Gain instead of LTCG. The impugned addition thus even otherwise requires to be deleted based on AO’s own observations.

The appellant craves leave to add, amend, alter, modify or delete any of the above grounds as well as to submit additional grounds at the time of hearing of the appeal.”

3. The brief facts of the case are that the assessee had purchased 5000 shares of Kappac Pharma Ltd @20/-per share on 02-04-2012 in physical form by making payment of Rs. 1,00,000/-in cash. The said shares were sold by the assessee on 25-11-2014 for Rs. 12,43,000/-. The AO based on the enquiry conducted by Director of Investigation, Kolkata found that M/s Kappac Pharma Ltd was a penny stock company and was being used to launder money by providing accommodation entry. The BSE has also suspended the trading activity in the security of M/s Kappac Pharma Ltd on 07-01-2015 vide order dated 01-01-2015. The AO discussed the facts of purchasing the shares in cash in physical form and selling it at a gain of 12 times within a period of 20 months. The assessee contended that all the transactions are well documented and shares have been held in demat form for more than 12 months and therefore no additions is called for in the instant set of facts. However, the AO held that in view of the facts and circumstances of the present case and circumstantial evidence available on record, it has been concluded that the transactions were sham transactions and aimed only to bring unaccounted money in the guise of exempted long­term capital gains and paperwork has been done merely to give a colour of authenticity to the transaction and by creating a façade of legitimate transactions. Accordingly, the AO added an amount of Rs. 11,43,000/- to the returned income of the assessee. In appeal, Ld. CIT(Appeals) issued notices to the assessee, but since the assessee did not cause appearance, Ld. CIT(Appeals) passed ex parte order confirming the additions made by the Ld. Assessing Officer by observing that DIT(Inv), Kolkata has conducted detailed investigation in respect of penny stock companies including M/s Kappac Pharma Ltd. in which the modus operandi adopted by the entry provided to book bogus profit and loss has been established.

4. The assessee is in appeal before us against the aforesaid order passed by the Ld. CIT(Appeals). At the outset, the counsel for the assessee submitted that inadequate opportunity of hearing was provided by the Ld. CIT(Appeals) in appeal proceedings and the assessee was not granted an opportunity of presenting his case on merits and the order was passed on ex-parte basis without allowing assessee to present his case. The counsel for the assessee argued that there is no specific information in respect of the involvement of the assessee in engaging in any sham transaction and the order passed by the Revenue is based on conjectures and surmises. The assessee has not been involved in any ingenuine transaction and he has validly held the shares for more than 12 months before disposing of the same. All the transactions were made through banking channels and there is no allegation that the assessee has been involved in any accommodation entry. The Ld. DR relied on the observations made by the ld. CIT(A) in his order.

5. We have heard the rival contentions and perused the material on record. We note that the Ld. CIT(Appeals) passed ex parte order confirming the additions made by the Ld. Assessing Officer. In our view, in the interests of justice, we are restoring the matter to the Ld. CIT(Appeals) for adjudication of the case on merits after giving opportunity of hearing to the assessee. The Ld. DR has also not objected to the matter being set aside to Ld. CIT(Appeals) for adjudication on merits.

6. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 22-06-2022

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