Case Law Details
Ayushi Jain Vs ITO (ITAT Kolkata)
In a significant ruling by the Income Tax Appellate Tribunal (ITAT) in Kolkata, the case of Ayushi Jain vs. Income Tax Officer (ITO) sheds light on the scrutiny of long-term capital gains (LTCG) and the treatment of investments deemed as bogus by tax authorities. This article delves into the intricate details of the case, the arguments presented by both parties, and the final verdict, providing valuable insights for taxpayers and professionals alike.
Introduction; The appeal filed by Ayushi Jain against the order of the Commissioner of Income Tax (Appeals) – 6, Kolkata, for the Assessment Year 2015-16, brings to the fore the complexities involved in claiming LTCG on share sales. The core issue revolves around the addition of Rs. 11,78,596, which was claimed as LTCG from the sale of shares of Kappac Pharma Ltd. (KPL), being treated as bogus by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961.
Background of the Case: Ayushi Jain declared a total income of Rs. 4,70,650 for the Assessment Year 2015-16. Upon scrutiny, the AO raised questions regarding the LTCG claimed on the sale of 5000 units of KPL shares, which were deemed exempt under Section 10(38) of the Act. The AO’s skepticism was fueled by an investigation report suggesting manipulation by penny stock companies to facilitate tax exemptions on bogus LTCG.
Despite Ayushi Jain’s contestation and request for investigation reports, the AO observed a “bell-shaped pattern” in the trading results, indicative of manipulative practices, leading to the disallowance of the LTCG claim.
The Income Tax Appellate Tribunal (ITAT) in Kolkata’s ruling on Ayushi Jain vs. Income Tax Officer (ITO) represents a pivotal moment in the assessment of long-term capital gains and the validation of share transactions. The case centered around the addition of Rs. 11,78,596 as bogus LTCG, which Ayushi Jain claimed from the sale of shares of Kappac Pharma Ltd. (KPL). The Assessing Officer (AO) challenged these gains under Section 68 of the Income Tax Act, 1961, branding them as fictitious. However, the Tribunal’s thorough examination led to a contrasting conclusion.
Reasoning Behind the Tribunal’s Decision
i. Examination of Transaction Authenticity: The Tribunal meticulously reviewed the transaction details, including the purchase and sale of KPL shares. It was established that Jain had purchased 5,000 units of KPL shares in 2012 at a total cost of Rs. 75,000, and these were sold during the Assessment Year 2015-16, claiming LTCG. The transactions were executed through a registered broker of the Calcutta Stock Exchange, substantiated by contract notes, bank statements reflecting the sale proceeds, and Demat account statements.
ii. Transparency and Compliance with SEBI Regulations: A critical aspect of the Tribunal’s analysis was the emphasis on the regulated nature of stock exchange transactions. It noted that stock exchanges operate under strict guidelines where transactions are electronically logged, ensuring transparency and compliance with the Securities and Exchange Board of India (SEBI). This environment makes it highly improbable for the alleged manipulation of share prices or the facilitation of bogus LTCG, as suggested by the AO.
iii. Rejection of AO’s Allegations: The AO’s allegations were primarily based on an investigation report indicating manipulation by penny stock companies. However, the Tribunal found these allegations to be speculative, lacking direct evidence against Jain. It pointed out the absence of incriminating material linking Jain or her broker to the supposed manipulation scheme. The reliance on generalizations rather than specific evidence against the assessee was deemed insufficient grounds for the addition under Section 68.
iv. Judicial Precedents and Legal Principles: The Tribunal underscored several judicial precedents emphasizing that the onus of proof lies on the tax department to establish any transaction as bogus. It cited landmark judgments, including those by the Supreme Court, which held that no addition could be made solely based on suspicion, conjectures, or surmises without concrete evidence disproving the authenticity of the documents provided by the assessee.
v. Principle of Natural Justice: A significant part of the Tribunal’s reasoning revolved around the principles of natural justice. It criticized the AO’s failure to provide Jain with an opportunity to cross-examine the statements or reports used against her. This omission was highlighted as a violation of natural justice principles, further weakening the department’s position.
Implications of the Tribunal’s Ruling: The Tribunal’s decision in Ayushi Jain vs. ITO is a reaffirmation of the legal safeguards designed to protect taxpayers from arbitrary and baseless accusations. It sets a precedent emphasizing the necessity for the tax department to substantiate allegations of bogus LTCG with concrete evidence. For taxpayers, it underscores the importance of maintaining transparent and well-documented transactions, especially when dealing with investments in shares.
Conclusion: The Tribunal’s analysis and ruling in the Ayushi Jain vs. ITO case offer a comprehensive insight into the legal scrutiny applied to cases of alleged bogus LTCG. By dissecting the Tribunal’s reasoning, this article aims to provide readers with a clear understanding of the evidentiary standards and legal principles that govern the assessment of such claims. The verdict not only serves as a guide for taxpayers and professionals navigating the complexities of tax law but also as a reminder of the judiciary’s role in upholding the principles of fairness and justice in the tax system.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of Ld. CIT(A) – 6, Kolkata dated 02.11.2018 for Assessment Year 2015-16.
2. The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the action of AO by treating Rs. 11,78,596/- which the assessee claimed as Long Term Capital Gain on sale of shares of M/s. Kappac Pharma Ltd. (herein after M/s. KPL) as bogus and added u/s 68 of the Income Tax Act, 1961 (herein after referred to as the ‘Act’)
3. Brief facts of the case as noted by the AO is that the assessee had declared total income of Rs. 4,70,650/- thereafter the case was selected for scrutiny under CASS. The AO noted that the assessee had purchased scrip of M/s. Kappa Pharma Ltd. of 5000 units which were sold during AY 200 15-16 and claimed long term capital gain of Rs. 11,78,596/- which the assessee claimed as exempt u/s 10(3 8) of the Act. Thereafter, the AO issued show cause notice (SCN) to the assessee wherein the AO raised the doubts about the claim of the Since according to the AO the investigation report of the department states that 84 penny stock companies in active connivance of 32 share broking entities were involved in pre-planned LTCG/STCL for beneficiaries like assessee by which transactions, the beneficiaries / assessee’s ill gotten money is converted LTCL and have claimed exemption from tax. Thereafter, the AO took the aid of a chart to show the price fluctuation. Though the assessee contested the allegation made by the AO in the show cause notice and asked for the reports of the Investigation Wing, the AO did not dealt with it and was of the opinion that the assessee is silent regarding the bell shaped pattern emerging from the trading result of the scrip and thereafter he discussed the modus operandi adopted by unscrupulous brokers hand in blow with the penny stock companies to convert the black money white of beneficiaries like assessee. Thereafter, the AO disallowed the claim of the assessee and made an addition of Rs. 11,78,596/- u/s 68 of the Act which was challenged by the assessee unsuccessfully before the Ld. CIT(A). Aggrieved the assessee is before me.
4. Assailing the decision of the Ld. CIT(A), the ld. AR pointed out that similar issue regarding LTCG claim on sale of M/s. Kappac Pharma Ltd. was before this Tribunal and the Tribunal was pleased to allow the claim in the case of Usha Singhania in ITA No. 1495/Kol/2018 dated 1st February, 2019. According to the ld. AR all documents to prove the purchase and sale of shares of M/s. KPL were furnished by the assessee however the AO / CIT(A) has discarded the same without finding any faults to those documents, has erroneously made the addition which needs to be deleted.
5. Per contra the ld. DR vehemently supported the order of the Ld. CIT(A) and drew our attention to page 2 to 4 of the assessment order and urged before us that the claim of assessee was bogus and, therefore, it was rightly disallowed by the authorities below and we should not interfere with the same and cited case law, which we will discuss infra.
6. Having heard both the parties and after carefully perusing the record, it is noted that the assessee had purchased 5000 numbers of shares of M/s. Kappac Pharma Ltd. (M/s. KPL) on 10.07.20 12 at a total cost of Rs.75,000/- from M/s. Sannidhya Tradelink Pvt. Ltd. [Copy of purchase bill is found placed in the paper book at page no.8.] We note that the payment was made through an account payee cheque and copy of the bank statement evidencing the payment made to M/s. Sannidhya Tradelink Pvt. Ltd. for such share purchase found placed is in the paper book at page no.10. Thereafter in this assessment year, the assessee sold the shares at a consideration of Rs. 12,53,750/- through M/s. Spartek Financiers & Investment Pvt. Ltd. which is a registered broker of the Calcutta Stock Exchange and has also been registered by SEBI as is evident from the contract note and claimed long term capital gains of Rs.1 1,78,750/-. Copy of contract notes in connection with sale of shares (Page 11 of Paper book) the bank statement (HDFC) reflecting the receipt of sale consideration is found placed at page 12 of paper book, and Demat statement is found in the paper book at page no. 13.
7. From the perusal of above documents it is noted that the aforesaid transaction happened in the stock exchange electronically, whereby it is common knowledge that only the share brokers registered with SEBI can enter in to a transaction on the stock exchange/electronic platform and transaction of purchase and sale takes place in a fraction of time from anywhere in India on behalf of brokers’ clients or on brokers own account. As per common knowledge on the subject, all such activity or purchase and sale on the platform of the stock exchange are logged on real time basis and that it is not possible to sell/purchase the shares of any company on the stock exchange in variance to the prevailing market price at any point of time. Hence, the assumption is that assessee neither knows the buyer nor it would be able to know the identity of the persons who has sold the shares at the time of purchase of the shares and purchaser of the shares at the time of sale of the shares at the stock exchange.
8. It is noted that the A.O’s allegation of conversion of unaccounted money in the form of alleged bogus long term capital gains is not based on any incriminating materials directly against the assessee and her broker. We note that the A.O/ld. CIT(A) has made the addition on the basis of suspicion and conjectures which they could not have done without at least finding fault with the document produced by the assessee.
9. For that proposition of law we rely on the decision of the Hon’ble Supreme Court in Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) wherein it relied on its earlier judgment rendered in the case of Omar Salav Mohamed Sait [1959] 37 ITR 151 (SC) where in their Lordships have held that no addition can be made on the basis of surmises, suspicion and conjectures.
10. Further in the case of CIT(Central) Calcutta vs. Daulat Ram Rawatmull (87 ITR 349) the Hon’ble Supreme Court has held that the onus to prove that the apparent is not the real is on the party who claim it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences of a character, which would either directly prove the fact of bogus/fictitious or establish circumstances unerringly and reasonably raising an inference to that effect. Further, the A.O. in the assessment order relied upon the purported statements of various alleged operators on the basis of which the A.O. had drawn adverse inference in the instant case. It is noted that nowhere any of them has ever named the assessee/broker in the alleged manipulation. Further, the A.O. did not provide any opportunity to cross examine the said persons. It is a well-settled principle of law that no credence can be given to the statement/report of any person given behind the back of the assessee unless a copy of the same is furnished to the assessee and an opportunity to cross examine the third person is afforded to the assessee. In this regard, reliance placed upon the following judgments:
(i) Andman Timber Industries vs. CCE – [2015] 62 com 3 (SC),
(ii) P.S. Abdul Majeed vs. Agricultural Income-tax and Sale Tax Officer and Others 209 ITR 821 (Ker.),
(iii) CIT vs. Eastern Commercial Enterprises 210 ITR 103 (Cal),
(iv) CIT vs. Ajnara India Ltd. (2011) 49 DTR 273 (Del-Trib),
(v) Calcutta High Court in S.M. Bothra & Sons (HUF) vs ITO (2011 62 DTR(Cal) 234,
(vi) Delhi High Court in CIT vs Rajesh Kumar (2008) 306 ITR 27.
11. I have already noted that the assessee has conducted all the transactions through a recognized share broker and received and made the payments through account payee cheques. It is submitted that the genuine transactions cannot be and should not be treated as ingenuine merely on arbitrary view of suspicion as held in the following cases:
(i) CIT vs. Carbo Industries Holdings Ltd. 244 ITR 422 (Cal)
(ii) CIT vs. Emerald Commercial Ltd. 250 ITR 539 (Cal)
(iii) Manish Kumar Baid vs. ACIT, order dated 18.08.2017; ITANo. 1236-1237/K/12
(iv) Vasudha Jain vs. ITO, ITA No. 1018/K/2018, order dated 15.02.2019
(v) Prakasho Devi Saria vs. ITO, ITA No. 2360/K/2017, order dated 17.05.2019
(vi) CIT vs. Bhagwati Prasad Agarwal (Calcutta High court); ITA No.22 of 2009, dated 29.04.09.
12. It is noted that the A.O has nowhere in the assessment order referred to any material which can prove the complicity of assessee in the alleged accommodation entry operation. In the light of the documents furnished by the assessee, the authorities below were not justified in invoking the provisions of section 68 of the Act in regard to the sale proceeds of shares. There is no evidence on record to disbelieve that the shares sold through registered share and stock broker. The assessee had produced all evidences to explain the source of the amounts received by the assessee from the brokers. Thus the A.O/CIT(A) was not justified in assessing the sale proceeds of shares as undisclosed income. In the light of the aforesaid documents filed before us and A.O/Ld. CIT(A) and it is noted that similar issue was before the Tribunal in the case of M/s Usha Singhania in ITA No. 1495/Kol/2018 wherein long term capital gain on sale of M/s KPL was allowed by this Tribunal vide order dated 1st February 2019 wherein the Tribunal held as under:
“5. After hearing both sides, I find that in a number of cases this bench of the Tribunal and Jurisdictional Calcutta High Court has consistently held that, decision in all such cases should be based on evidence and not on generalization, human probabilities, suspicion, conjectures and surmises. In all cases additions were deleted. Some of the cases were, detailed finding have been given on this issue, are listed below:-
| Sl.No | ITA Nos. | Name of the Assessee | Date of order /Judgment |
| 1. | ITA No.714 to 718/Kol/2011 ITAT, Kolkata | DICT vs. Sunita Khemka | 28.10.2015 |
| 2. | 214 ITR 244 Calcutta High Court | CIT vs. Carbo Industrial Holdings Ltd. | – |
| 3. | 250 ITR 539 | CIT vs. Emerald Commercial Ltd. | 23.03.2001 |
| 4. | ITA No. 1236-1237/KOl/201 7 | Manish Kumar Baid vs. ACIT | 18.08.2017 |
| 5. | ITA No.569/Kol/201 7 | 15.11.2017 | |
| 6. | ITA No.443/KOl/201 7 | Kiran Kothari HUF | 15.11.2017 |
| 7 | ITA No.2281/Kol/201 7 | Navneet Agarwal vs. ITO | 20.07.2018 |
| 8 | ITA No.456 of 2007 Bombay High Court | CIT vs. Shri Mukesh Ratilal Marolia | 07.09.2011 |
| 9 | ITA No.95 of 2017 (O&M) | PCIT vs. Prem Pal Gandhi | 18.01.2018 |
| 10 | ITA No.1089/Kol/2018 | Sanjay Mehta | 28.09.2018 |
6. Regarding the case laws relied upon by the ld. Departmental Representative, I find that, in the case of M/s. Pankaj Agarwal & Sons (HUF)(supra), the issue was decided against the assessee for the reason that, the assessee could not justify his claim as genuine by producing evidence and was only arguing for the matter to be set aside to the lower authorities on the ground of natural justice. As similar arguments were not raised before the lower authorities by the assessee, the ITAT rejected these arguments. In the case on hand, all evidences were produced by the assessee. In the case of Sanjay Bimalchand Jain, legal heir of Santi Devi Bimalchand Jain, the Hon ’ble High Court upheld the stand of the Revenue that the transaction in question is an adventure in nature of trade and the profit of the transactions is assessable under the head of ‘Business Income’. In the case on hand, the ld. Assessing Officer has not assessed this amount as ‘Business Income’. In any event, I am bound to follow the judgment of the Jurisdictional High Court in this matter. I find that the assessee has filed all necessary evidences in support of the transactions. Some of these evidences are (a) evidence of purchase of shares, (b) evidence of payment for purchase of shares made by way of account payee cheque, copy of bank statements, (c) copy of balance sheet disclosing investments, (d) copy of demat statement reflecting purchase, (e) evidence of sale of shares through the stock exchange, (f) copy of demat statement showing the sale of shares, (g) copy of bank statement reflecting sale receipts, (h) copy of brokers ledger, (i) copy of Contract Notes etc.
7. The proposition of law laid down in these case laws by the Jurisdictional High Court as well as by the ITAT Kolkata on these issues are in favour of the assessee. These are squarely applicable to the facts of the case. The ld. Departmental Representative, though not leaving his ground, could not controvert the claim of the ld. Counsel for the assessee that the issue in question is covered by the above cited decisions of the Hon ’ble Jurisdictional Calcutta High Court and the ITAT. I am bound to follow the same.
8. In view of the above discussion I delete the addition made u/s 68 of the Act, on account of Long Term Capital Gains.”
13. Respectfully following the order of the Tribunal of this bench in the case of Usha Singhania (supra), and taking note of the documents filed by assessee to prove the veracity of the transaction and I am inclined to allow the claim of the assessee and direct deletion of the addition of Rs. 11,78,596/-.
14. Before I part I would like to deal with the case laws cited by the Ld. DR who had submitted 23 judicial pronouncements in his support. I note that the said judicial pronouncements are all distinguishable on facts as well as on law. The said decisions are dealt with herein below in seriatim as under:
1. Ratnakar M. Pujari vs. Assessee -ITA No.995/Mum/2012, Order dt. 3rd August,2016 [AY 2006-07] -ITAT Mumbai
In this case the ITAT, Mumbai Bench were considering a case where the purchases of shares were treated as bogus and sham transactions by the Revenue in the immediately preceding financial year 2005-06 and the said findings of the AO with respect to bogus and sham purchases were not challenged by the Assessee. In such facts of the case the Tribunal had treated the exempt long term capital gains arising on sales of shares as bogus and sham. However, there is no such finding of fact in the instant case and thus the facts in the instant case are distinguishable.
It was brought to my notice that the aforesaid order of ITAT, Mumbai, inter-alia, had been distinguished by Co-ordinate Benches of the Tribunal in the following cases:
a. Kaushalya Agarwal vs. ITO [ITA No. 194/Ko/2018, Order dt. 03.06.2019 (Kol, ITAT)]
b. Meenu Goel vs. ITO [2018] 94 com 158 (Del-Trib)
2. Ritu Sanjay Mantry vs. ITO – ITA No.2003/Mum/2017, Order dt. 9th February,2018 – ITAT Mumbai
In this case is that was reopened by the AO on the basis of information received from office of DGIT (C&IB), New Delhi that the assessee had taken accommodation entry from M/s. Magasagar Securities Pvt. Ltd. (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of Rs. 10,32,289/-. Subsequently the assessment was completed u/s. 147 r.w.s. 143(3) of the Act after making an addition of Rs.10,39,289/- on account of bogus share transactions and Rs.20,786/- being commission paid to the broker for arranging accommodation entries in the form of share transactions. The AO had given a finding that the assessee had taken entries from Mahasagar Securities Pvt. Ltd. involved in the shares scam case for Rs. 10,39,289/- for bogus speculation profit during the financial year 2007 -08. It was further found by the AO that the assessee has paid cash of equivalent amount and received back by cheque and bogus contract notes and bills for the transactions not actually rooted through stock exchange. It is noted that the ITAT, Mumbai had relied upon and followed the judgment of Hon’ble Bombay High Court in Sanjay Bimalchand Jain v. PCIT, Order dated 10.04.2017 (Bom.), being judgment of Jurisdictional High Court. However, in this case, the AO observed that the assessee had taken entries and paid cash of equivalent amount and received back by cheque. And on the basis of such adverse inference, the Tribunal confirmed the addition made by the AO. However, in the present case in hand, there is no such finding made by the AO.
Further. It is noted that the abovementioned judgment of ITAT, Mumbai Bench has been considered and distinguished by the ITAT, Kolkata Benches and other Benches of the Tribunal, inter-alia, in the following cases:
a. Satyanarayan Saria vs. ITO [ITA No. 1224/KoIl2016, Order dt. 28.06.2019 (Kol ITAT)]
b. Kaushalya Agarwal vs. ITO [ITA No.194/KoIl2018, Order dt. 03.06.2019 (Kol, ITAT)]
c. Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib)
Reference is also made to the recent judgment dated 01.07.2019 rendered by this Tribunal in the case of Aparna Misra Vs. ITO (ITA No. 161/Kol/2019) wherein the Tribunal had relied upon the following jurisdictional Calcutta High Court judgments to decide similar issue in favour of the assessee.
i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012]
ii) CIT vs. Lakshmangarh Estate & Trading Co. Limited [2013] 40 com 439 (Cal)
iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012]
iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016]
v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008]
vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738-ITA No. 22 of 2009, Order dt. 29.4.09]
3) Coming to the case of ITO vs. Shamim M. Bharwani (2016) 69 taxmann.com (Mum ITAT), Order dt. 27.03.20 15 of Mumbai Triabunal, the brief facts in this case was that the assessee purchased 2500 shares of Emrald Commercial Ltd. (ECl). The purchase was in cash. According to the AO since the purchase was made in cash, the same was not verifiable. Further, the A.O. found that said transaction was not through the stock exchange. The shares were in a nondescript company, with no financial and/or physical assets of value or reported earnings. The shares, purchased at an average rate of Rs. 21.70 per share in May 2004, went up to as much as from Rs. 465 to Rs. 489 in July, 2005, i.e., just over years’ time. Each of these incidents matched with that which could be expected in a case of a transaction in a penny stock, the modus operandi of the transactions in which was also listed by the AO. Accordingly, relying on the decisions by the apex court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC); Durga Prasad More v. CIT [1971] 182 ITR 540 (SC) and MC. Dowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC), besides by the Tribunal in the case of Asstt. CIT v. Som Nath Maini [2006] 7 SOT 202 (Chd.), he assessed the impugned credit of Rs. 12.15 lacs as unexplained income u/s. 68 of the Act. The Tribunal confirmed the addition observing that the purchase of shares was off market purchase not reported in the stock exchange. Further, it was observed by the Tribunal that the purchase was through a back date contract note in cash and, there was no trail. Thus it is noted that Tribunal in this case confirmed the addition on a factual finding that the purchase was through a back dated contract note in cash and, there was no trail. This fact is not applicable in the present case.
Further, it is noted that the abovementioned judgment of Tribunal, Mumbai Bench was considered/distinguished by the Mumbai ITAT in its following judgments while allowing similar issue in favour of the Assessee:
a. DCIT vs. Anil Kainya [ ITA Nos.4077 & 4078/MUM/2013, Order dt. 22.03.16 Mum ITAT)]
b. Anjali Pandit vs. ACIT [2017] 88 taxmann.com 657 (Mumbai – Trib.)
Further, it is noted that lthe said judgment has been considered/distinguished by the Kolkata and other Benches of the Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the assessee.
a. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.06.2019 (Kol ITAT)]
b. Anupama Garg vs. ITO [ITA NO.5971/0el/2018, Order dt. 12.12.2018 (Del, ITAT)]
c. Radhika Garg. vs. ITO [ITA No.4738/0el/2018, Order dt. 01.01.2019 (Del-Trib)
4. Coming to the case of Vidya Reddy – ITA No.126/Chny/2017 –Chennai ITAT had disallowed the claim of exempt LTCG and had confirmed the addition made on the ground that the assessee has not placed any material before the lower authorities to prove that her transactions are genuine. The Tribunal observed “She has also not placed any material to prove that her claim of exemption u/s. 10(38) is genuine and valid.” However, in the case of the assessee company all relevant documents were furnished to support purchases as well as sale of shares. Further, the Chennai Tribunal had relied upon and followed the judgment of Hon’ble Bombay High Court in Sanjay Bimalchand Jain Vs. PCIT, order dated 10.04.20 17, which judgment has been considered and distinguished by Kolkata and other Benches of the Tribunal, inter-alia, in the following cases:
a. Satyanarayan Saria vs. ITO [ITA No.1224/Kol/2016, Order dt. 28.06.2019 (Kol ITAT)]
b. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.06.2019 (Kol, ITAT)]
c. Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib)
Reference is also made to the recent judgment dated 1st July, 2019 rendered by the Tribunal in the case of Aparna Misra vs. ITO [ITA No. 161/KoIl2019] wherein the Tribunal had relied upon the Jurisdictional Calcutta High Court judgments, as mentioned hereinabove.
5. M. K. Rajeshwari vs. ITO [2018] 99 taxmann.com 339 – The Bangalore Tribunal noted the acts in this case as the assessee earned long-term capital gain on sale of shares of MARL and claimed exemption on it under section 10(38). The Assessing Officer relying upon the report of the investigation wing, SEBI report and findings/observations of the SIT, concluded that exemption under section 10(3 8) claimed by the assessee was not acceptable and the act of the assessee in purchasing the penny stock shares and sale of fee within the ambit of adventure in the nature of trade. Consequently, amount in question was liable to be taxed under the head ‘business income’. The Tribunal confirmed the addition by observing that the department had brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of account through long-term capital gain by adopting such method.
It is noted that in the aforesaid case, the Tribunal confirmed the addition on a factua1 finding that the department had brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of account through long-term capital gain by adopting such method. This fact is not applicable in the present case.
Further, the abovementioned judgment has been considered/distinguished by this Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the Assessee:
a. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.06.2019 (KoI ITAT)]
b. Yogesh Dalmia vs. ACIT [ITA No.113/Kol/2018, Order dt. 03.06.2019 (KoI ITAT)]
c. Navin Kumar Kajaria vs. ACIT [ITA No.1254-55/Kol/2018, Order dt. 03.04.2019 (Kol- Trib)
d. Soumitra Choudhury vs. ACIT [ITA No.256/Kol/2019, Order dt. 15.03.2019 (Kol ITAT)]
6. Coming to the case of Abhimanyu Soin [2018-TIOL-733-ITAT-CHD – The Chandigarh Bench of Tribunal had confirmed the addition made by AO after observing that
“11. The assessee has failed to prove that the purchase and sale transactions are genuine and could not even furnish and iota of evidence regarding the sale of shares
…………… ”. However, in the case of the Assessee Company all relevant documents
were furnished to support, and prove beyond all doubts, purchases and as well as sale of shares, which was evidently absent in that case, so is not applicable to case in hand.
7. Coming to the case of Balbir Chand Maini Vs. CIT (2011) 12 taxmann.com 276 (P&H) – The Hon’ble Punjab & Haryana High Court had confirmed the addition made by Assessing Officer on the basis of finding of fact by the Tribunal:
“10. The Tribunal while adjudicating the issue against the assessee had recorded a finding of fact that the transaction of sale and purchase of shares of M/s. Ankur International Ltd., was not a genuine transaction, a part where of relevant to the present issue, mentioned in para Nos. 27 and 28 of the order, reads as under ….”
However, in the case of the Assessee Company all relevant documents were furnished to support, and prove beyond all doubts, purchases and as well as sale of shares.
Further this judgment has been considered and distinguished by this Tribunal and other Benches of the Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the Assessee:
a. Kaushalya Agarwal vs. ITO [ITA No. 194/Kol/2018, Order dt. 03.06.20 19 (Kol ITAT)]
b. Kamal Singh Kundalia vs. ITO [ITA No.2359/Kol/2017, Order dt. 08.05.2019 (Kol ITAT)]
c. Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib)
8. Coming to the case of Chandan Gupta Vs. CIT (2015) 54 taxmann.com 10 (P&H) – The Hon’ble Punjab & Haryana High Court had confirmed the addition made by Assessing Officer on the basis of finding of fact by the Tribunal that the assessee had failed to prove the genuineness of the transaction of sale and purchase of shares. The relevant observation is as under:
“….. On appreciation of the evidence, the Tribunal held that the assessee had failed to prove the genuineness of the transaction of sale and purchase of shares. Once the transaction of purchase and sale was found to be bogus then the sale proceeds had to be added as income of the assessee under Section 68 of the Act because the money received on the basis of bogus transaction had been credited by the assessee in the books of account which remained unexplained.
9. In view of the findings of fact recorded by the authorities below which could not be demonstrated to be erroneous or perverse in any manner, no interference is called for.
However, in the instant case of the Assessee company all relevant documents were furnished to support and prove beyond all doubts, purchases as well as sale of shares. Further this judgment has been considered and distinguished by this Tribunal and other Benches of the Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the Assessee:
a. Kaushalya Agarwal vs. ITO [ITA No. 194/Kol/2018, Order dt. 03.06.20 19 (Kol, ITAT)]
b. Kamal Singh Kundalia vs. ITO [ITA No.2359/Kol/2017, Order dt. 08.05.2019 (Kol ITAT)]
c. Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib)
9. Coming to the case of CIT vs. Sunita Dhadda (Hon’ble Supreme Court judgment dated 06.06.2018), it is noted that this judgment relied upon by the department has no application in the facts of the instant case. The contention of Ld. DR that matter should be set aside to AO for supplying the Assessee with Investigation Wing Report and statements of parties relied upon cannot be applied in each and every case. The assessee company had in the case in hand discharged the onus casted upon it to prove the claim of LTCG/STCL, then it was the bounden duty of the AO to bring out the falsity/fabrication/wrong doing if any on the part of assessee or confront the assessee with any material which is adverse against the assessee and to proceed in accordance to law i.e. in confronting with principle of Natural Justice without doing so, and when assessee placed all documentary evidences before the AO/Ld. CIT(A), the assessee cannot be again sent back before AO and the decision to send back to AO is decided when proper opportunity has not been given by AO during assessment stage and that is not the case here in the case in
10. Coming to the following cases. I note that in these cases given below
Mahendra Kumar Bhandari vs. ITO [Order dt. 06.04.20 18]
Aravind Kumar, Chennai vs. ITO [Order dt. 08.11.2018]
Vikram Dughar, Chennai vs. ITO [Order dt. 13.11.2018]
Sadhana, Bangalore vs. ITO [Order dt. 26.05.2017]
Arun Kumar Bhaiya, New Delhi vs. ITO [Order dt. 30.08.20 18]
Natti Singh HUF, Jaipur vs. ACIT [Order dt. 31.10.2018]
Vinod J. Sharma, Thane [Order dt. 28.10.2015]
All the matters were set aside to the file of the AO for fresh consideration and/or to confront the Assessee with the adverse materials used against him. The matters in each of the said cases were set aside in the specific facts and circumstances of each of the cases were set aside in the specific facts and circumstances of each of the cases wherein all facts were not available on record and/or where in the words of the D/R the “AO has botched up enquiry”.
However, in the case in hand there is no occasion for setting aside the matter in as much as the assessee had furnished all relevant documents, materials and/or evidence to support its transactions of purchase and as well as sale of shares and the AO had failed to point out any defect and/or lacuna in the said documents, materials and/or evidence.
Further, this Tribunal in its orders had decided similar issue in favour of the assessee by relying on binding judicial pronouncements. Reference is also made to the recent judgment dated 1st July, 2019 rendered by the Tribunal in the case of Aparna Miwsra, supra wherein the Tribunal had relied upon the following jurisdictional Calcutta High Court judgments to decide similar issue in favour of the assessee.
i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012]
ii)CIT vs. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal)
iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012]
iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016]
v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008]
vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738-ITA No. 22 of 2009, Order 29.4.09]
11. Coming to the cases given below
Prem Jain vs. ITO [ITAT, Delhi, Order dt. 22.03.2018]
Sanjay Bimalchand Jain vs. PCIT [2018] 89 taxmann.com 196 (Bom)
The decisions of these cases had been relied upon by D/R to contend that gains from sale of shares should be assessed as “Business income” and not under the head “Capital Gains”. It is noted that the Learned D/R is trying to put forward a completely new argument which do not emanate out of the orders of the lower authorities and also from the records of the case and thus is not permissible to be raised as this stage.
Even otherwise, the ITAT, Delhi Bench in Prem Jain (supra) had held when the facts of the case was that the Assessee had claimed the income from sale of shares to be assessed at business profits and not capital gains where there was short duration of holding of shares and lack of clarity in account books, sale and purchase of shares. In such facts of the case, it was held that profits from sale of shares would amount to business income and not short term capital gain. However, no such case had been made out by the Assessing Officer in the instant cases.
The aforesaid order has been considered by this Tribunal while deciding similar issue in favour of an assessee in the case of Kaushalya Agarwal Vs. ITO (ITA No. 194/Kol/2018, order dated 03.06.2019 (ITAT, Kol).
More particularly, the judgment of Hon’ble Bombay High Court in Sanjay Bimalchand Jain V. PCIUT, order dated 10.04.20 17 (Bom HC) had been considered and distinguished by this Tribunal and other benches of the Tribunal, inter-alia, in the following cases:
a. Satyanarayan Saria vs. ITO [ITA No.1224/Kol/2016, Order dt. 28.06.2019 (Kol ITAT)]
b. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.06.2019 (Kol, ITAT)]
c. Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib)
12. Coming to the cases given below:
ACIT vs. Madhuri Sunil Kotecha [ITAT, Pune, Order dt. 28.03.2018]
Charu Agarwal, Meerut vs. ITO [ITAT, Delhi, Order dt. 10.09.2018]
Dayaram Khandelwal vs. PCIT [MP High Court, Order dt. 01.03.2018]
Sourabh Khandelwal vs. PCIT [MP High Court, Order dt. 01.03.2018]
It is noted that in all of these cases relates to imposition of penalty under section 271(1)(c) of the Act in the facts where the Assessee had withdrawn/surrendered his/her claim of exempt L TCG u/s. 10(38) of the Act and paid taxes on the gains arising from sale of shares. All these judgments are irrelevant and has no application to the facts of the instant case before the Tribunal.
13. Coming to the case of SEBI v. Rakhi Trading P. Ltd [Civil Appeal No.1969 of 2011, Judgment dated 8th February, 2018 (of the Hon’ble Supreme Court ) It is noted that the Hon’ble Supreme Court was concerned with a case where SEBI had initiated actions against few traders and brokers for violation of Regulations 3(a), (b) and (c) and 4 (1), (2)(a) and (b) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“the PFUTP Regulations”). In the said case, the Hon’ble Apex Court upheld the action initiated in the case of traders as the said traders have admitted of being involved in synchronized trade to manipulate the prices of shares. There is no such admission by the Assessee in the instant case that it has involved in any price manipulation and/or any dubious tax planning. Moreover, the Hon’ble Apex Court had set aside the action initiated by SEBI in the case of brokers as there was no evidence on record to show involvement of the said brokers. Similarly in the instant cases the department had failed to bring on record any evidence whatsoever to show that the Assessee was involved in any price manipulations. Thus the judgment of the Hon’ble Supreme Court is clearly distinguishable on facts. The said judgment had been held to be distinguishable by the ITAT, Kolkata Benches in the following judgments:-
i. Suman Saraf v. ITO in ITA No.1395/KoI/2018, Order dated 05. 10.2018.
ii. Jignesh Desai v. ITO in ITA No.1394/KoI/2018, Order dated 05. 10.2018.
iii. Rishab Jain v. ITO in ITA No. 1392/KoI/2018, Order dated 05.10.2018.
iv. Rekha Devi v. ITO in ITA NO.1269/KoI/2018, Order dated 05. 10.2018.
v. Sunita Devi v. ITO in ITA No. 1268/Ko1/2018, Order dated 05. 10.2018.
vi. Jagat Lal Jain v.ITO in ITA No.1226/KoI/2018, Order dated 05. 10.2018.
vii. Sneha Choudhary v. ITO in ITA NO.1218/KoI/2018, Order dated 05.10.2018.
viii. U.C.Choudhary & Ors (HUF) v. ITO in ITA No. 1217/KoI/2018, Order dated 05.10.2018.
ix. Virendara Barmecha v. ITO in ITA No. 1201/KoI/2018, Order dated 05.10.2018.
x. Taruna Devi Barmecha v. ITO in ITA No.1 199/KoI/2018, Order dt. 05.10.2018.
xi. Premlata Agarwal vs. ITO in ITA No.874/KoI/2018, Order dt. 05. 10.2018.
xii. Sunil Kumar Ladha vs. ITO in ITA No.851/KoI/2018, Order dt.05.10.2018.
xiii. Balram Gupta vs. ITO in ITA No.817/KoI/2018, Order dt.05.10.2018.
xiv. Alka Changoiwala vs. ITO in ITA No.634/KoI/20 18, Order dt.05. 10.2018.
xv. Santosh Choraria vs. ITO in ITA NO.521/KoI/2018, Order dt.05.10.2018.
xvi. Sonal Bajaj vs. ITO in ITA No.239/KoI/2018, Order dt.05.10.2018.
xvii. Sudha Khandelwal v. ITO in ITA No.86/KoI/2018, Order dt. 05.10.2018.
xviii. Bina Agarwal vs. ITO in ITA NO.1403/KoI/2018, Order dt.05.1 0.2018.
xix. Harish Jain vs. ITO in ITA No. 1404/Ko1/2018, Order dt.05.10.2018.
Thus, it is noted that aforesaid decision of the Hon’ble Supreme Court, Hon’ble Bombay High Court and Tribunal are distinguishable and so the ratio is not applicable to the case in hand.
15. Respectfully following the order of the Tribunal of this bench in the case of Usha Singhania (supra), and taking note of the documents filed by assessee to prove the veracity of the transaction and I am inclined to allow the claim of the assessee and direct deletion of the addition of Rs. 11,78,596/-.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 9th August, 2019
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