Case Law Details
Atmiben Alipitkumar Doshi Vs ITO (ITAT Ahmedabad)
In the realm of tax jurisprudence, the decision of the Income Tax Appellate Tribunal (ITAT) in Ahmedabad in the case of Atmiben Alipitkumar Doshi Vs ITO for the Assessment Year 2014-15 emerges as a noteworthy precedent. This case delves into the intricate scrutiny of Long Term Capital Gains (LTCG) on shares, particularly focusing on transactions deemed dubious by the tax authorities. This article meticulously unpacks the tribunal’s decision, offering insights into its implications for taxpayers and the legal framework governing LTCG on shares.
Background of the Case: Atmiben Alipitkumar Doshi (the assessee) appealed against the order passed by the CIT(A)-2, Ahmedabad, which confirmed the addition of Rs. 13,47,989 as LTCG from the sale of shares of Kappac Pharma Limited. The addition was made based on allegations of non-genuine transactions, despite the assessee’s contention that the transactions were supported by valid documents and met the conditions laid down for claiming exemption under Section 10(38) of the Income Tax Act, 1961.
Tribunal’s Deliberation and Ruling
- Examination of the Transaction’s Genuineness: The tribunal scrutinized the nature of the transactions involving Kappac Pharma Limited shares. Notably, the assessee’s purchase of shares was initially in cash and outside the regular stock exchange, raising questions about the transaction’s authenticity. The significant rise in the scrip’s value within 24 months further fueled suspicions.
- Assessment Order’s Foundation: Contrary to the assessee’s argument that the assessment order heavily relied on an investigation report from the Kolkata wing, the tribunal noted that the Assessing Officer (AO) had conducted an independent examination. This examination included the transaction’s mechanics and the disproportionate increase in the share price, suggesting the transaction’s ingenuity.
- Relevance of SEBI Investigation: The tribunal also considered the Securities and Exchange Board of India’s (SEBI) investigation into the scrip of Kappac Pharma Limited. While the assessee argued that mere suspension of trading by the BSE did not invalidate the genuineness of the transactions, the tribunal found that the assessee’s purchase at a higher price than the market rate was indicative of a bogus nature.
- Precedents and Judicial Interpretations: The tribunal distinguished the case from other precedents cited by the assessee, emphasizing that the factual matrix in Atmiben Alipitkumar Doshi’s case was distinct. It referenced the Hon’ble Delhi High Court’s decision in Udit Kalra, which dealt specifically with Kappac Pharma Limited scrip and found transactions in said scrip to be non-genuine.
Implications of the Tribunal’s Decision
The ITAT’s ruling in Atmiben Alipitkumar Doshi Vs ITO reinforces the principle that the onus is on the taxpayer to substantiate the genuineness of LTCG claims. Key takeaways include:
- Scrutiny of Transactions: Taxpayers claiming LTCG exemptions must be prepared for thorough scrutiny of their transactions, especially when involving scrips under investigation or exhibiting unusual price movements.
- Documentation and Evidence: The decision underscores the importance of purchasing shares through recognized stock exchanges and maintaining robust documentation to support the genuineness of transactions.
- Judicial Precedents: The reliance on specific judicial decisions, like Udit Kalra, highlights the significance of case-specific facts over general legal principles in determining the outcome of similar disputes.
Conclusion: The ITAT Ahmedabad’s decision in Atmiben Alipitkumar Doshi Vs ITO is a critical reminder of the complexities surrounding LTCG on shares and the rigorous evidence required to claim tax exemptions. For taxpayers and practitioners, this case serves as a precedent for understanding the depth of analysis and evidence needed to substantiate LTCG claims, ensuring compliance with the legal standards and avoiding disputes with tax authorities.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against the order dated 12.02.2018 passed by the CIT(A)-2, Ahmedabad for the Assessment Year 2014-15.
2. The grounds of appeal raised by the assessee are as under :-
“1. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs. 13,47,989/- on account of disallowance of Long Term Capital Gain [LTCG] on sale of shares of Kappac Pharma Limited merely on surmises and conjectures based on various allegations/observations made by the AO in the assessment order which are not case specific and subject matter of the show-cause, contrary to the facts of the case and thus highly irrelevant and not applicable to the appellant’s case.
1.1 The learned CIT (A) has grievously erred in not appreciating the fact that the AO though relied upon the finding of the investigation report of the DIT – Kolkata made the addition while treating the purchase of shares as non genuine and thereby sale of shares as non genuine. The learned CIT (A) has accordingly grievously erred in failing to appreciate the fact that if the purchase of shares were treated as non-genuine then how the delivery shares taken and demated in the demat form and delivery of shares given on sale of shares given in view of the fact that sale of shares was not denied by the AO in the assessment order.
1.2 The learned CIT(A) has grievously erred in not appreciating the fact that the enquiries made by the AO with the SEBI and enclosed with the assessment order has no relevance for the impugned addition of LTCG on sale of shares of Kappac Pharma Ltd. made by the AO and confirmed by him in the appellate order.
1.3 The learned CIT (A) has grievously erred in not appreciating the fact that the AO had failed to furnish material/evidences on the basis of which the AO has alleged that appellant was one of the beneficiary of alleged arranged accommodation entries of bogus LTCG. In view of the said fact, the impugned addition even otherwise requires to be deleted, the same being in flagrant violation of the principles of natural justice and equity.
1.4 The learned C1T(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 valid documents, the payment for the purchase of shares has been duly recorded in books, the sale consideration has been received through banking channels, the shares have been held for approx. 24 months prior to the date of sale and have been duly reflected in demat account, 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. 13,47,989/- thus being based on mere surmises and conjectures is wholly unjustified and bad in law.
1.5 The learned CIT(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 except relying upon general and vague information in the report received from Kolkata Investigation Wing.
2. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 1,80,000/- made by the AO while treating the Tuition income shown by the appellant in the return of income as unexplained income by invoking the provisions of 68 of the Act without bringing on record any material/evidences to negate the explanation/facts stated by the appellant. In view of facts, circumstances and evidences filed, the income of Rs. 1,80,000/- requires to be treated as tuition income as shown by the appellant and not unexplained income u/s.68 of the Act.”
3. Income Tax Act, 1961 on 20.12.2014 and notice under Section 143(2) of the Act dated 18.09.2015 was issued and duly served upon the assessee. Thereafter, notice under Section 142(1) of the Act along with questionnaire dated 13.06.2016 was issued. During the course of assessment proceedings, notice under Section 142(1) and summon under Section 131(1A) of the Act was issued to the assessee and witness thereby asking the assessee to furnish certain documents! details !evidences! clarification to finalise the assessment proceedings. The assessee did not appear before the Assessing Officer. The Assessing Officer observed that the assessee derived income from salary, tuition income, agricultural income, interest income and also business income related to share trading therein the LTCG was claimed and exempted under Section 10(38) of the Act. The Assessing Officer observed that the assessee derived Rs.13,47,989!- as LTCG from the sale of the only one scrip i.e. Kappac Pharma Limited and the assessee purchased 5000 shares on 02.04.2012 at Rs.20!- per share and sold 2000 shares through brokers. The payment of Rs.1 Lakh for these shares were made in cash while purchasing the same through off market transactions. The assessee sold 2000 shares on 27.03.2014 through ASE Capital Markets Limited. The Assessing Officer observed that there was enquiry related to penny stock companies and this particular scrip was under investigation. Therefore, the Assessing Officer after giving detailed reasons made addition of Rs.13,47,989!- thereby denying the claim of LTCG under Section 10(38) of the Act treating the same as unexplained income under Section 68 of the Act as well as addition of Rs.1 ,90,000!- as tuition income traded as unexplained income under Section 68 of the Act.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The Ld. AR submitted that no cross enquiries were carried out by the Assessing Officer before treating the LTCG as share transaction in the assessment order. There was no mention in the Assessment Order regarding LTCG as share transition and the Assessing Officer has not related any specific information!material evidences pertaining to the assessee from the report of the Investigation Wing of the Kolkata and as to what documents were in the possession of the Assessing Officer to establish the allegation of bogus LTCG claim. The shares of Kappac Pharma Limited was held by the assessee for more than 12 months prior to selling the same. The question of treating the purchase of shares as non-genuine and consequently sale of shares and LTCG as unexplained income of the assessee does not arise, more particularly in absence of even an iota of concrete material or evidence brought on record by the Assessing Officer is only on surmises and assumption basis. The Ld. AR further submitted that merely because the said company i.e. Kappac Pharma Limited has been treated as a penny stock company does not in any way make the genuine investment of the assessee as non-genuine/bogus investment. The Assessing Officer failed to bring on record any material evidences so as to arrive at the conclusion that the assessee is involved in the alleged activity of rigging of price of Kappac Pharma Limited in connivance with the Stock Exchange and Brokers so as to conclude that the share price of the company in question as per market was not genuine price but inflated or deflated one governed by so called accommodation entry provider. Ld. AR further submitted merely the trading in the said scrip has been suspended by the BSE i.e. stock exchange and the said scrip is not delisted the BSE as evident from the website of BSE i.e. stock exchange, the said company is regularly complying with the Rules and regulations of relevant laws by Mina necessary/required documents with the stock exchange till date. The Ld. AR further submitted that the assessment order solely based on Investigation Wing report and, therefore, the addition may be deleted. Ld. AR relied upon the decision of Tribunal in the case of Prakash Javia HUF vs. ITO, ITA No.464 & 465/Ind/2019, order dated 25.05.2021 (Indore Bench), case of Ayushi Jain, Kolkata vs. ITO (ITA No.2551/Kol/2018 order dated 09.08.2019 (Kolkata Bench). Ld. AR also relied upon the decision of Hon’ble Gujarat High Court in case of PCIT vs. Jagat Pravinbhai Sarabhai, R/Tax Appeal No.332 of 2022, order dated 04.07.2022 and Tribunal’s decision in case of Smt Reshmiben Pa. Kanugo vs. ITO being ITA No.2131/Ahd/2018, order dated 28.02.2022. Ld. DR submitted that the investigation report has clearly stated that the scrip mainly of Kappac Pharma Limited was delisted for the particular period and, therefore, the Assessing Officer has rightly made the addition and denied the claim of LTCG under Section 10(38) of the Act.
7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has purchased the shares in the scrip from Kappac Pharma Limited on 02.04.2012 being 5000 shares at Rs.20/- per share. The said purchase was in cash originally. This fact was undisputed. The assessee, thereafter, submitted before us that on 21.11.2014 the assessee sold 5000 shares in Bombay Stock Exchange at different dates and gained Rs.675 per share within 24 months. Thus, there was exorbitant scrip increase from 20.04.2012 to 27.12.2014. The Assessing Officer also made observations in the Assessment Order that the assessee bought shares at Rs.20./- when the market price was of Rs.17.45 on 02.04.2012 in fact. There was no basis from the analysis of the company that Kappac Pharma Limited scrip price shares. These objections are separate objections by the Assessing Officer from the investigation report. The assessment order is not solely based on investigation but the Assessing Officer has verified each aspect about increase in the share and how transaction took place in assessee’s own case. Though the assessee has sold the scrip through Bombay Stock Exchange, it has not purchased from the stock exchange market and, therefore, the conclusion of the Assessing Officer was based on factual circumstances in assessee’s own case. The purchase of Kappac Pharma Limited share is in fact appears bogus in nature as the scrip when having share price of Rs.17.45 was purchased by the assessee at Rs.20/- outside the regular stock exchange. The claim of the Ld. AR that the assessee has done the transaction and submitted his demat statement as well as transaction statement along with debit note and share certificate does not shun away the aspect that the assessee was very well aware about the brokers in respect of penny stock. Therefore, the contentions as well as the decision submitted by the assessee are not relevant in the present case. In fact, in case of Udit Kalra, 201 9(4)TM/834, decided by the Hon’ble Delhi High Court has dealt with ‘Kappac Pharma Limited scrip’ and held that the transaction in the said scrip was not genuine and bogus. Therefore, the Assessing Officer and the CIT(A) has rightly denied LTCG exemption under Section 10(38) of the Act to the assessee. Appeal of the assessee is, therefore, dismissed.
ITAT upholds denial of LTCG exemption under Section 10(38) on shares of Kappac Pharma Limited
8. In the result, appeal filed by the assessee is dismissed.
9. Order pronounced in the open Court on this 30th day of January, 2023.
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