Rambilas S Agarwal Vs DCIT (ITAT Mumbai)
The assessee appealed against the order dated 28.07.2023 passed by the National Faceless Appeal Centre under Section 250 of the Income-tax Act, 1961 for Assessment Year 2014-15.
The assessee purchased 36,500 shares of M/s. Santoshima Tradelinks Limited on 01.02.2012 for ₹7,30,000 through an account payee cheque. The shares were subsequently dematerialised on 31.12.2012, following which Santoshima Tradelinks Limited amalgamated with M/s. Sunrise Asian Limited. After holding the shares for about 17 months, the assessee sold them through the online platform of the Bombay Stock Exchange between 28.08.2013 and 22.11.2013 for a total consideration of ₹1,80,85,010, and claimed Long-Term Capital Gain (LTCG) exemption of ₹1,73,55,010 under Section 10(38).
During assessment proceedings, the Assessing Officer relied upon the investigation conducted by the Kolkata Directorate regarding 84 penny stocks and called upon the assessee to justify the exemption claim. The assessee produced purchase bills, bank account statements, demat account statements and broker notes in support of the transactions. Although the Assessing Officer acknowledged these documents, he relied upon the investigation report, the alleged abnormal rise in the share price, the mode of acquisition of the shares and the decision of the Supreme Court in Sumati P. Dayal v. CIT to treat the sale proceeds of ₹1,80,85,010 as unexplained cash credit under Section 68, taxable under Section 115BBE. The Assessing Officer also added ₹5,20,650 under Section 69 towards alleged commission at 3% and ₹1,868 relating to capital loss on sale of the scrip.
The Commissioner (Appeals) affirmed the additions, substantially adopting the reasoning of the Assessing Officer. The assessee thereafter appealed before the Tribunal.
The Tribunal observed that the assessee had held the shares for about 17 months, sold them through recognised stock exchange and banking channels, and that no action had been taken by SEBI or any investigation agency against the assessee. It further noted that the Assessing Officer himself had admitted that the assessee produced purchase bills, bank statements, demat statements and broker notes. The Tribunal held that these documents discharged the assessee’s prima facie onus under Section 68.
The Tribunal found that the Assessing Officer had no independent corroborative material against the assessee and had merely relied upon the Kolkata Directorate’s investigation report, the SEBI report and the rise in share prices, without establishing any role of the assessee in the alleged activities. According to the Tribunal, the additions were based only on conjectures and surmises.
The Tribunal relied upon the Bombay High Court decision in PCIT vs. Ziauddin A. Siddique, the Gujarat High Court decision in PCIT-1 Vs Divyaben Prafulchandra Parmar, and its own earlier decision in Haresh Dilip Vora Vs. ITO Ward 25(2)(4), Mumbai, all of which dealt with similar issues relating to Sunrise Asian Limited shares. It also referred to the Supreme Court decision in PCIT vs. Smt. Renu Aggarwal, as relied upon in the coordinate bench decision.
Following these judicial precedents and the factual findings, the Tribunal held that the additions made under Section 68 and Section 69 were unsustainable. It accordingly deleted the additions and allowed the assessee’s appeal. The order was pronounced on 08.04.2025.
Cases Discussed
- PCIT vs. Smt. Renu Aggarwal (Supreme Court), [2023] 456 ITR 249 (SC)
- PCIT-1 Vs Divyaben Prafulchandra Parmar (Gujarat High Court), R/TAX Appeal No. 812 of 2023, decided on 02-01-2024; 2024(1) TMI 800
- Haresh Dilip Vora Vs. ITO Ward 25(2)(4), Mumbai (ITAT Mumbai), ITA No. 3646/M/2024, decided on 10.09.2024
- PCIT vs. Ziauddin A. Siddique (Bombay High Court), 2012 of 2017 (Bombay-HC)
- Union of India vs. Kamalakshi Finance Corporation Ltd. (Supreme Court), 55 ELT 43 (1991)
- CIT Vs Swati Bajaj (Calcutta High Court), [2022] 446 ITR 56 (Calcutta)
- Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO, 120 taxmann.com 10
- Jagat Pravinbhai Sarabhai
- Sumati P. Dayal vs. CIT, 214 ITR 801
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the Assessee against the order dated 28/07/2023, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2014-15.
2. In this case, the Assessee had purchased 36,500 shares of M/s. Santoshima Tradelinks Limited on dated 01.02.2012 on a total consideration of Rs.7,30,000/- (@ Rs.20 per share) by banking channel i.e. account payee cheque paid on 22.02.2022. Subsequently, the shares were dematerialized on 31.12.2012 and M/s. Santoshima Tradelinks Limited amalgamated with M/s. Sunrise Asian Limited. The Assessee held the share for around 17 months and thereafter through online platform of Bombay Stock Exchange, sold the said shares from 28.08.2013 to 22.11.2013 @ Rs.495.48 per share approximately and on a total consideration of Rs.1,80,85,010/- and consequently claimed the amount of Rs.1,73,55,010/- being exempt u/s 10(38) of the Act, on account of Long Term Capital Gain (LTCG).
3. The Assessing Officer (AO) considered the claim of the Assessee and based on the investigation carried out by Kolkata Directorate into 84 penny stocks show caused the Assessee to justify the said exemption claimed. The Assessee during the course of assessment proceedings has furnished purchase bill of shares, bank account statements, DP statements and some broker notes to strengthen his claim of LTCG as mentioned in para no.4 of the assessment order. Though the AO considered the said documents, however, considering the mode of acquisition of the shares by the Assessee, unusual rise in the price of shares, findings of the investigation wing and analysis of the transactions and by taking refuge of the decision of the Hon’ble Apex Court in the case of Sumati P. Dayal vs. CIT 214 ITR 801, ultimately treated the sale price of the shares amounting to Rs.1,80,85,010/- as unexplained cash credit u/s 68 of the Act and taxable u/s 115BBE of the Act and added the same to the income of the Assessee. The AO also made the addition of Rs.5,20,650/- being commission @ 3% of Rs.1,73,55,010/- and added the same in the income of the Assessee u/s 69 of the Act. The AO also made the addition of Rs.1,868/- which has been shown capital loss, pertaining to the sale of shares of the scrip involved.
4. The Assessee, being aggrieved against the additions made by the AO, challenged the same before the Ld. Commissioner by filing first appeal, however, of no avail, as the Ld. Commissioner affirmed the aforesaid addition on the similar footing/reasoning, as of the AO.
5. The Assessee, being aggrieved, has challenged the affirmation of the additions by the Ld. Commissioner, by filing this appeal.
6. We have heard the parties and perused the material available on record. Admittedly, as mentioned above, the Assessee held the shares for around 17 months and sold the same through banking channel and it is a fact that no action has ever been taken by the SEBI or any Investigation Agency against the Assessee herein and it is a fact that the Assessee has produced the relevant documents such as purchase bills of shares, bank account statement, DP statement and some broker notes in order to establish his claim of LTCG. This fact is duly admitted by the AO in para no.4 of the assessment order itself. Therefore, in our considered opinion, the Assessee has discharged its prima-facie onus cast u/s 68 of the Act. Further, the AO had no base or foundation/corroboration to make the addition in the hands of the Assessee. The AO simply relied on the investigation report of the Kolkata Directorate and the SEBI report and usual rise in the price, in which the Assessee has not played any role and therefore it goes to show that the AO made the additions under consideration simply on the conjecture and surmises, which at all are not sustainable, as per the decision of the Hon’ble Jurisdictional High Court in the case of PCIT vs. Ziauddin A Siddique 2012 of 2017 (Bombay –HC), wherein it has been held as under:
“1. The following question of law is proposed: “Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was DMATed and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the Haresh Dilip Vora financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/-claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?”
2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. (“RFL”) is done through stock exchange and through the registered Stockbrokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
3. Therefore we find nothing perverse in the order of the Tribunal.”
4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 v. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs.”
7. We further observe that Hon’ble Gujarat High Court in PCIT-1 Vs Divyaben Prafulchandra Parmar {R/TAX Appeal no. 812 of 2023 decided on 02-01-2024} (Citation 2024(1) TMI 800) has also dealt with same scrip i.e. M/s. Sunrise Asian Limited as involved in this case and ultimately affirmed the decision of the Hon’ble Tribunal in deletion of the identical addition, by observing and holding as under:
13. Feeling aggrieved by the order passed by the Tribunal, the appellant – Revenue has preferred this Tax Appeal on the proposed substantial questions of law narrated hereinabove.
14. Learned Senior Standing Counsel Mr. Karan Sanghani for the appellant reiterated the submissions made before the Tribunal and submitted that the Assessing Officer, after analyzing the data made available from the Bombay Stock Exchange, came to the conclusion that the price of script, which the assessee sold, was fluctuating by 24 times and after sale of shares made by the assessee, the price has reduced to Rs.0.49. It was, therefore, submitted that the Assessing Officer, taking into consideration the volatility of the share price of the script sold by the asssessee, was justified in relying upon the report of the Investigation Wing of Kolkata as well as the fact that the SEBI has suspended the transaction of the said script for some time and accordingly, the Assessing Officer was justified in making addition of unaccounted income of the assessee on the ground of accommodation entries availed by the assessee.
15. It was further submitted that the CIT(A), after considering the documents available on record, has upheld the view taken by the Assessing Officer. It was submitted that the Tribunal, after considering the submissions made by the assessee and the Departmental Representative, allowed the appeal. It was submitted that the Tribunal, therefore, contrary to the facts and evidence on record, has allowed the appeal without considering the findings of the Assessing Officer and the CIT(A) in its true perspective.
16. Considering the contentions raised on behalf of the Revenue, the Tribunal has arrived at a finding of fact that shares of Sunrise Asian Ltd. sold by the assessee cannot be doubted as bogus and exemption under Section 10(38) of the Act was rightly availed by the assessee. The Tribunal has also concluded that the presumption drawn by the Assessing Officer was not corroborated by any evidence to establish the alleged non-genuine transaction by the assessee. It was, therefore, rightly held by the Tribunal that the claim of the assessee for exemption of Long Term Capital Gains under Section 10(38) of the Act cannot be held to be bogus on the basis of presumption in absence of any evidence brought on record by the assessee with regard to shares of Sunrise Asian Ltd, which is not even found to be rigged by the SEBI also. The Tribunal has also considered that the assessee held the shares for two and half years and after holding the shares for a long period, the same were sold by the assessee and therefore, reliance was placed on the decision of this Court in the case of Jagat Pravinbhai Sarabhai (supra), wherein this Court has held as under:
“5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1.6.2001 to 1.10.2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span.
6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed.
6.1 On the facts of case, no question of law much less substantial question of law arises.
7. Resultantly, appeal is dismissed.”
[17] In view of the above, we are of the opinion that no question of law much less any substantial question of law arises from the impugned order passed by the Tribunal. The appeal, being devoid of any merit, is, accordingly, dismissed.
8. The Tribunal in the case of Haresh Dilip Vora Vs. ITO Ward 25(2){4} Mumbai {ITA no. 3646/M/2024 decided on 10.9.2024} has also dealt with identical scrip and while following aforesaid judgments, ultimately deleted the identical addition, as involved in this case, by observing and holding as under:
7.2. The ld. CIT(A) in impugned appeal order respectfully relied on the order of Hon’ble Calcutta High Court in the case of CIT Vs Swati Bajaj[2022] 446 ITR 56 (Calcutta) where on same set of facts related taxability of LTCG on sale of shares considered as manipulated penny stock & the action of the ld. AO is confirmed. But the related to scrip “Sunrise Asian Ltd” the assessee is covered by the order of the Hon’ble Gujrat High Court. Accordingly, the same would prevail on the issue before this Bench. In the present case, the decision of the Hon’ble Non- Jurisdictional High Court carries only an influence. The law is very well settled by the Hon’ble Supreme Court in the case of Union of India vs Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of Hon’ble Jurisdictional High Court would have higher precedence value on the Tribunal than the decision of Hon’ble Non-Jurisdictional High Court.
Considering the impugned assessment order, the ld. AO has not provided any evidence even worth a name that Assessee’s own money has been routed back to him. There is no nexus with the Assessee with price rigging and no adverse observation from stock exchange. The addition simply on third party statement is uncalled for. We respectfully relied on the order of Hon’ble Supreme Court in PCIT vs Smt. Renu Aggarwal [2023] 456 ITR 249 (SC).
We respectfully rely on the orders of the Hon’ble Apex Court, Jurisdictional High Court and Coordinate Bench of ITAT Mumbai which has similar in the factual matrix with the impugned issue. The grounds of appeal of the assessee are upheld. We set aside the impugned appeal order. The additions amount to Rs. Rs.47,51,164/- U/s 68 of the Act and amount to Rs. 50,061/- U/s 69C are quashed.
9. As we observed above that the Assessee purchased the share through banking channel and held the same for around 17 months and sold the same through online platform and banking channel. The Assessee by filling relevant documents such as purchase bills of shares, bank account statement, DP statement and some broker notes in order to establish his claim of LTCG, has discharged prima-facie onus cast u/s 68 of the Act. Further, the AO had no base or foundation/corroboration to make the addition in the hands of the Assessee but he simply relied on the investigation report of the Kolkata Directorate and the SEBI report and usual rise in the price, in which the Assessee has not played any role and it is a fact that no action has ever been taken by the SEBI or any investigation agency against the Assessee herein and therefore it goes to show that the AO made the additions under consideration simply, on the conjecture and surmises, and therefore the additions in view of the above facts and circumstances and decisions, are not sustainable, thus the same are deleted.
10. In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 08.04.2025.
