Reassessment of Alleged Bogus LTCG/STCG Remitted for Source Investigation

Trishla Vyapaar Pvt Ltd Vs DCIT (ITAT Ranchi)

Reassessment of alleged bogus LTCG/STCG was remitted back for investigation regarding genuineness of the source of receipt of share subscriptions or share capital/premium

Conclusion: Since the order for addition of bogus LTCG/STCL was passed without making any enquiry, verification and investigation regarding genuineness of the source of receipt of share subscriptions or share capital/premium, CIT directed AO to frame the assessment de novo by making fresh enquiries regarding the genuineness of the share capital/share premium after affording proper and reasonable opportunity of being heard to assessee while framing the consequential assessment order.

Held: Assessee was a private limited company, and its account was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS). Such scrutiny was due to suspicious transactions related to short-term capital loss and long-term capital gain on shares. AO, on further scrutiny, assessed assessee’s income to be ₹5 Crores and that  assessee company had adopted a device to evade taxes. AO explained that the colourable device was a sham arrangement adopted by the taxpayer to avoid taxes. AO relied upon a decision by the Supreme Court in the case of McDowell & Co. that a colourable device comes within the purview of tax evasion. AO observed that assessee was a paper/bogus entity with no physical existence or business activity and was controlled mainly by Consortium Capital Pvt. Ltd or some other accommodation entry operators to facilitate the accommodation entry of pre-arranged bogus LTCG/STCL. AO also held that despite issuing notices under sections 143(2) and 142(1), assessee did not comply with those, and AO made additions to the income found in the assessee’s account. It was held that since the order was passed without making any enquiry, verification and investigation regarding genuineness of the source of receipt of share subscriptions or share capital/premium, CIT directed AO to frame the assessment de novo by making fresh enquiries regarding the genuineness of the share capital/share premium after affording proper and reasonable opportunity of being heard to assessee while framing the consequential assessment order. Since the instant appeal pertained to the A.Y. 2014-15 and the facts of the case were similar and also the modus operandi adopted by assessee company was the same, it was proper to remand the matter back to the file of CIT(A) to decide the issue afresh after giving due consideration of all issues involved in this case.

FULL TEXT OF THE ORDER OF ITAT RANCHI

This appeal preferred by the assessee emanates from the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “the Ld. CIT(A)” dated 31.01.2023 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for Assessment Year 2014-15 as per the following grounds of appeal:

“i) For that the Learned CIT(A) erred in confirming the assessment order of AO in a single paragraph without properly appreciating the submissions of the assessee.

ii) For that the Learned CIT(A) erred in confirming the addition made by AO when the assessment order was passed without application of mind.

iii) For that the Learned CIT(A) erred in confirming the addition of entire sales value consisting several stocks without even deducting the cost of sales (as if purchases was Nil).

iv) For that the addition of sales was not called for when the stock which was sold were purchased and held as stock in trade being assets appearing in the balance sheet of the earlier years and realization of the assets cannot be treated as income.

v) For that the Learned CIT(A) erred in confirming the addition of interest income when the same was already credited to P/L A/c.

vi) For that the Learned CIT(A) erred in confirming the additions relying on some statement when the statement relied on by the AO for making the addition was itself retracted by the deponent.

vii) For that the Learned CIT(A) erred in confirming the additions when the assessee was neither provided the material relied on by AO nor the opportunity to cross examine the deponents.”

2. Briefly stated facts are that the assessee is a private limited company. The case of the assessee was selected for scrutiny on 28.08.2015 through ‘CASS” for the Assessment Year 2014-15. At the time of selection of this case for scrutiny, the jurisdiction of PAN was with ITO, Ward-1(4), Kolkata and the reason for selection under scrutiny was given as under:

“Large share premium received during the year, suspicious transaction related to short term capital loss and long term capital gain on shares (inputs from Investigation Wing.)”

3. Accordingly, notices u/s. 143(2) and 142(1) of the Act were issued from time to time by the Assessing Officer. However, no compliance was made. Subsequently, the file of the assessee was transferred on 31.08.2016 from ITO, ward-1(4), Kolkata to ITO, Ward-1(5), Kodarma. Thereafter, notices u/s. 142(1) were issued to the assessee by the Assessing Officer, Ward-1(5), Kodarma from time to time. However, either the notices were not served on the assessee due to incomplete address or if served, no compliance was made on the part of the assessee. Finally, the Authorised Representative Shri Bishal Agarwal appeared before the Assessing Officer on 23.11.2016 on assessee’s behalf and submitted the following documents:

(i) Copy of audited Profit and Loss Account and Balance Sheet for the F.Y. 2013-14 along with hard copy of relevant I. T. return and tax audit report.

(ii) Complete details about the directors of the company.

(iii) Bank statement.

(iv) List of shareholders.

(v) List of investment forming part of Balance Sheet.

(vi) Details of loans and advances along with confirmation.

4. Further, a written reply was also submitted by the Authorized Representative of the assessee on 23.11.2016 in response to the notice issued by the Assessing Officer u/s. 142(1) of the Act as under:

i. The assessee company is a non-banking financial company.

ii. The assessee company neither owned nor taken any property on lease or any immovable property.

iii. During the relevant F.Y. 2013-14, the assessee company has neither allotted any share capital nor received any share application money from any entity.

iv. During the relevant F.Y., the company neither had nor taken any loan from any entity.

However, the directors of the company did not appear in response to the summon issued by the Assessing Officer on or before the said date and only a written submission was filed stating that summon was received after the compliance date. The Assessing Officer again issued a show cause notice dated 16.12.2016 to provide the information in respect of alleged transactions relating to short term capital loss and long term capital gain on shares in the A.Y. 2014­15, but no compliance was made. The Assessing Officer has noted in the assessment order that enquiries were conducted by the Directorate of Investigation, Kolkata resulting into the unearthing of huge syndicate of entry operators, share brokers and money launderers involved in providing bogus accommodation of long term capital gain and short term capital loss with prime objective of accommodating unaccounted cash of beneficiaries into their regular books of account without paying any tax. Following listed companies were unearthed by the DIT Wing, Kolkata which are directly or indirectly owned by operators and whose share prices have been apparently manipulated by the syndicate of operators: –

5. At the time of survey conducted u/s. 133A of the Act in the office premises of Consortium Capital Pvt. Ltd., Kolkata on 11.09.2015, statement on oath u/s. 131 of the Act was recorded from Shri Jai Kishan Poddar son of late R. S. Poddar who was one of the directors of Consortium Capital Pvt. Ltd., and in his final statement, he accepted that the above named scrips/penny stocks were only purchased for the purpose of providing accommodation entry of bogus Long Term Capital Gain and Short Term Capital Loss.

6. Further, a statement u/s. 131 was recorded by the DDIT(Inv.), Kolkata on 16.06.2015 of Shri Anil Kedia, one of the designated directors of Excel Stock Broking Pvt. Ltd. during the course of survey conducted u/s. 133A of the Act. In the statement of Shri Anil Kedia revealed that Trishala Vyapaar Pvt. Ltd. is a paper/bogus entity having no physical existence or business activity. It is controlled mostly by their group of individuals or some other accommodation entry operators with the sole purpose of facilitating accommodation entry of pre-arranged bogus LTCG/STCL. This company has not done any noticeable business during the year. It is beyond the stretch of wildest imagination that a company which has not started its business in a proper manner, which is newly incorporated, whose return of income is very low and which is not associated with any major group. It proves that the trading of shares is imaginary in this case as the company itself is a bogus/paper company. Thus, considering the facts based on report of the Investigation Wing, Kolkata and perusal of the material available on record, the Assessing Officer finally, assessed the income of the assessee at ₹5,59,86,940/- on the ground that the assessee company has adopted a colourable device to evade taxes and the Hon’ble Supreme Court has already decided in the case of McDowell & Co. (154 ITR 148) that colourable device comes within the purview of tax evasion. Further, the Hon’ble ITAT “C” Bench, in appeal no. 1523(Madras) 1996 dated 12.10.2024 in the case of DCIT Vs. Sundram Finance Ltd. A.Y. 1992-93 and 1993-94, has also followed the decision of the Hon’ble Supreme Court in McDowell & Co. (supra). The Assessing Officer also referred to the decision of Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More (82 ITR 540) which has held that the surrounding circumstances must be seen to find out the reality of the recitals made in the document.

7. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Learned CIT(A), who vide the impugned order confirmed the order of the Assessing Officer passed u/s. 143(3) of the Act by holding as under:

“7. Decision :- I have considered the submission of the appellant and the assessment order of the Assessing Officer passed u/s. 143(3) of the I. T. Act 1961. On consideration of the appellant’s submissions made on the additions made by the Assessing Officer are found without any substance as same submissions were filed before the Assessing Officer who had considered those submissions and rejected after a detailed discussion on each and every point raised. I have noticed that Assessing Officer had given opportunity of being heard to the appellant before making addition. Assessing Officer had also discussed and incorporated appellant’s submission in the assessment order. Further, Assessing Officer is found to have given reasons as to why he had rejected the appellant’s contentions. In the facts and circumstances of the case on hand, I am inclined to agree with the findings of the Assessing Officer and all the additions made by the Assessing Officer stand confirmed. All the grounds 1 to 9 taken by the appellant are dismissed.

In the result, appeal is dismissed.”

8. The present appeal has been preferred before us by the assessee against the order of the Learned CIT(A). During the appellate proceeding before us, no one appeared on behalf of the assessee. The Learned CIT, DR, on the other hand, relied on the order of the lower authorities and stated that the assessee company is a bogus company and indulged into providing accommodation entry for the purpose of booking LTCG/STCL as no business activity was carried out by the assessee during the assessment year under consideration.

9. During the appellate proceedings before us, it was pointed out that this Bench has already decided in a separate appeal of the same assessee in ITA No. 56/Ran/2022 for the A.Y. 2012-13 dated 05.07.2024 emanating from the orders of the Learned CIT, Hazaribagh dated 19.03.2022 passed u/s. 263 of the Act for the A.Y. 2012-13 wherein this Bench has already upheld that order. In the said order, the Learned. CIT has held that order passed u/s. 143(3) read with section 264 of the Act was erroneous in so far as it is prejudicial to the interest of the revenue. Since the order was passed without making any enquiry, verification and investigation regarding genuineness of the source of receipt of share subscriptions or share capital/premium, the Learned CIT directed the Assessing Officer to frame the assessment de novo by making fresh enquiries regarding the genuineness of the share capital/share premium after affording proper and reasonable opportunity of being heard to the assessee while framing the consequential assessment order. Since the instant appeal pertains to the A.Y. 2014-15 and the facts of the case are similar and also the modus operandi adopted by the assessee company is the same, we think it proper to remand the matter back to the file of the Learned CIT(A) to decide the issue afresh after giving due consideration of all issues involved in this case. The assessee is also directed to produce all relevant documents/details before the Learned CIT(A) to explain its case.

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

Order pronounced in the open court on 28/11/2024.