Income Tax Appellate Tribunal - Chennai
Neeta Bothra, Chennai vs Ito Non Corporate Ward 9(3), Chennai on 8 September, 2021
आयकर अपील य अ धकरण, 'ए' याय पीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'A' BENCH, CHENNAI
ी वी. दग
ु ा राव, या यक सद य एवं ी जी. मंजुनाथ , लेखा सद य के सम%
BEFORE SHRI V.DURGA RAO , JUDICIAL MEMBER
AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.No.2507 & 2508/Chny/2018
( नधारणवष / Asses sm ent Years:2 012-13 & 2013-14)
Mrs. Neeta Bothra, Vs The Income Tax Officer,
1/1, General Patters Road, Non-Corporate Ward-9(3)
Chennai- 600 002. Chennai-6.
PAN: AAIPB 0445J
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओरसे/ Appellant by : Mr. D.Anand, Advocate
यथ क ओरसे/Respondent by : Mr.Suresh Periasamy,JCIT
सुनवाई क तार ख/Dat e o f hear ing : 14.07.2021
घोषणा क तार ख /Date of P r on ou n ce m ent : 08.09.2021
आदे श / O R D E R
PER G.MANJUNATHA, AM:
These two appeals filed by the assessee are directed against separate, but identical orders of learned CIT(A)-10, Chennai, both dated 12.06.2018 and pertains to assessment years 2012-13 and 2013-14. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order.
2. At the outset, learned AR for the assessee submitted that there is a delay in filing appeal by the assessee for assessment 2 ITA No. 2507 & 2508/Chny/2018 year 2012-13 for 18 days, for which necessary petition for condonation of delay explaining reasons for delay has been filed. The AR further submitted, in fact there is no delay, but the delay of 18 days is on account wrong date mentioned in Form 36, for receipt of order from office of the CIT(A), as per which, the date taken as 12.06.2018 instead of 16.07.2018. if, actual date of receipt of order, i.e. 16.07.2018 is considered, then there is no delay in filing appeal. Therefore, delay may be condoned in the interest of advancement of substantial justice.
3. The learned DR, on the other hand, strongly opposing condonation of delay petition filed by the assessee submitted that the reasons given by the assessee do not come within the ambit of reasonable and bona-fide reasons, which can be considered for condonation of delay and hence, appeal filed by the assessee for assessment year 2012-13 may be dismissed as not maintainable.
4. Having heard both sides and considered the petition filed by the assessee for condonation of delay, we are of the considered view that reasons given by the assessee for not 3 ITA No. 2507 & 2508/Chny/2018 filing the appeal within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of appeal is condoned and appeals filed by the assessee for assessment year 2012-13 is admitted for adjudication.
5. The assessee has, more or less filed common grounds of appeal for both assessment years, therefore, for the sake of brevity, grounds of appeal filed in ITA No.2507/Chny/2018 for assessment year 2012-13 are reproduced as under:-
"The order of the learned Commissioner of Income (Appeals)- 10, is wrong, illegal and opposed to facts of the instant case.
Both the Assessing officer and the CIT(A) in total non- application of mind to the facts of the appellants case erred in law in disallowing the claim of appellant claim of relief under section 10(38) of the Income Tax Act.
The learned CIT(A) ought to have seen that there is absolutely no adverse material to implicate the Appellant was involved in manipulation of shares or that the transaction of purchase and sale of sale was bogus to disallow the appellants claim of relief under section 10(38) of the Income Tax Act.
The learned CIT(A) appeals erred in disallowing the claim of the appellant under section 10(38) of the Income Tax Act and consequently failed to follow the dictum laid by the supreme court in the case of TEJUA ROHITKUMAR KAPADIA while confirming the addition made under section 68.
The learned Assessing officer and the CIT(A) erred in assessing the income from purchase and sale of shares under the head un explained credit under section 68 and not as 4 ITA No. 2507 & 2508/Chny/2018 income exempt under section 10(38) of the Income Tax Act as claimed by the appellant despite the fact that the appellant produced salient evidences to prove the genuineness of the transaction. The said uncontroverted evidences are overlooked both by the assessing officer and CIT(A) without any rhyme of reason and orders passed in a stereo typed manner on the basis of suspicion and surmise without application of mind to the facts of the appellants case.
The learned CIT(A) erred in relying on the decision of Hon'ble Mumbai High Court in the case of PCIT Vs Sanjay Bimal Chand Jam wherein the transaction was off market and purchase was through cash. The learned CIT(A) ought to have seen that in the case of the appellant the transaction of purchase and sale of shares are through recognized stock exchange which is fully supported by uncontroverted Documentary evidences and payment of STY which establish the bonafide of the appellants claim.
The learned CIT(A) erred in law in not following the decision of the Jurisdiction Tribunal in the case of Nirav Kumar Mahendra Sapani and Kinner Prafulchand Sapani . The order passed by the learned CIT(A) is totally against judicial discipline and is bad in law.
The learned assessing officer as well as the CIT(A) erred in relying on a certain pattern of bogus claim which is totally irrelevant to facts of the appellants. The learned lower authorities erred in relying on investigation in the case of third party which has no bearing on the appellants transaction to disallow the claim of the appellant under section 10(38).
The learned assessing officer as well as the CIT(A) have not brought to record any evidences to prove that the said transaction that the assesse had entered into was bogus in nature, basing the above purely on assumptions and suspicion. The learned assessing officer as well as the CIT(A) have not followed the doctrine of Res inter alios acta alteri nocere non debet and have, without any evidence to the same, held a valid transaction of the appellant as an unexplained credit."5
ITA No. 2507 & 2508/Chny/2018
6. Brief facts of the case as culled out from assessment order for Asst. year 2012-13 are that the assessee is an individual, derives income from business or profession and income from other source, filed her return of income for assessment year 2012-13 on 20.12.2013 declaring total income at Rs.1,67,390/-. The case has been subsequently reopened u/s.147 of the Income Tax Act, 1961, for the reasons recorded as per which income chargeable to tax had been escaped assessment on account of exemption claimed u/s.10(38) of the Income Tax Act, 1961, in respect of long term capital gain derived from sale of shares of certain companies and hence, notice u/s.148 was served on the assessee. The case has been taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee had purchased 2000 shares of M/s. Tuni Textile Mills Ltd. for financial year 2010-11 in two lots, one 950/- shares @ Rs.116.59 per share and another for 1050/- shares @ Rs.122.41 per share. The Assessing Officer further noticed that subsequently the company has split its equity shares having face value of Rs.10/- per share, into face value of Rs. 1 per shares, consequently, 2000 shares held by the assessee 6 ITA No. 2507 & 2508/Chny/2018 became 20,000 shares of M/s. Tuni Textile Mills Limited. These shares were subsequently sold on 05.03.2012 in the financial year relevant to assessment year 2012-13 @ Rs.95.50 per share for total consideration of Rs.19,05,200/-. The assessee has computed long term capital gain and claimed exempt u/s.10 (38) of the Act.
7. The Assessing Officer examined claim of long term capital gain u/s.10(38) and has not accepted explanation furnished by the assessee and according to him, assessee is one the beneficiary of bogus long term capital gain derived from penny stocks. The Assessing Officer has discussed the issue at length in light of financial statements of M/s. Tuni Textile Mills Limited, and opined that although share price of company was escalated in stock market, but such increase in share price was not supported by financials. Therefore, he opined that the assessee is part of organized racket of bogus long term capital gain derived from trading in shares of M/s. Tuni Textiles Limited and hence, entire consideration received from sale of shares has been treated as unexplained cash credit and added back u/s.68 of the Act. The Assessing Officer has also taken support from 7 ITA No. 2507 & 2508/Chny/2018 investigation carried out by Department in respect of penny stock companies to arrive at a conclusion that M/s. Tuni Textile Mills Limited is named as penny stock in the report prepared by investigation wing of the Department.
8. The assessee being aggrieved by the assessment order preferred an appeal before CIT(A). Before the learned CIT(A), the assessee submitted that the Assessing Officer has erred in making addition towards consideration received for sale of shares u/s.68 of the Act as unexplained cash credit, without appreciating fact that the assessee has purchased shares through recognized stock exchange and further, sold shares in recognized stock exchange for which necessary evidences including broker note and bank statements evidencing payment and receipt of consideration through cheque has been filed. The learned CIT(A), after considering relevant submissions of the assessee and also taken support from certain judicial precedents held that although the assessee claims to have purchased shares through recognized stock exchange and also utilized services of broker M/s.Kunvarji Finstock Pvt.Ltd. based at Ahmadabad, but failed to explain as to why she has 8 ITA No. 2507 & 2508/Chny/2018 availed services of a broker based at Ahmadabad for specific transaction of purchase and sale of shares of M/s. Tuni Textile Mills Limited., even though she is based at Chennai. The learned CIT(A) further noted that the broker M/s.Kunvarji Finstock Pvt.Ltd. was previously charged by SEBI under the Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market Regulations, 1995, and was also found guilty of violating regulatory requirements. He further noted that shares of M/s. Tuni Textile Mills Limited have been specifically named as penny stocks by investigation wing of the Department. The learned CIT(A) further noted that assessee is also unable to explain how a company which is having negligible financial strength has split its equity shares in the ratio of 1 : 10 and further, failed to explain how price of shares was quoted at a record 9400% growth rate in a short span of two years. Therefore, he opined that mere furnishing certain evidences, including broker notes to prove purchase and sale of shares through online platform and further payment or receipt of consideration through proper banking channel is not sufficient to prove genuineness of transaction, when other circumstantial evidences show that transaction of shares 9 ITA No. 2507 & 2508/Chny/2018 trading is not genuine. Therefore, he has rejected arguments of the assessee and confirmed additions made by the Assessing Officer. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.
9. The learned AR for the assessee submitted that the learned CIT(A) has erred in upholding additions made by the AO towards consideration received for sale of shares u/s.68 of the Income Tax Act, 1961, without appreciating fact that the assessee never involved in rigging sale price of shares in the market and also the AO has not brought on record any evidence to prove that the assessee is part of group of people, who are involved in rigging of share price in the market. The AR further submitted that no doubt M/s. Tuni Textile Mills Limited may be named as penny stock by investigation wing of the Department, but what is to be seen is whether the assessee is part of that group, who is involved in rigging of share price and also beneficiary of artificial increase in share price trading. Unless the AO brought on record some evidences to prove that there is a direct nexus between income derived by the assessee from sale of shares and rigging of share price in the 10 ITA No. 2507 & 2508/Chny/2018 market, he cannot treat genuine transactions of purchase and sale of shared as unexplained cash credit u/s.68 of the Act. The AR further referring to various decisions submitted that various High Courts, including the Hon'ble Delhi High Court, has considered similar issue in light of investigation carried out by income-tax department to unearth organized racket of penny stocks companies and after considering facts held that unless the Assessing Officer proves that there was an agreement between the parties to convert unaccounted money by taking fictitious long term capital gain in a pre-planned manner, he cannot proceed to make additions entirely on unsupported material on record. The AR further submitted that no doubt, there are divergent views on the issue, where some High Courts have held that once it is proved that scrip is a penny stock, then it is to be held that the assessee is also a beneficiary of bogus long term capital gain, but fact remains that in all those cases considered by Hon'ble High Courts and decided in favour of revenue, the fact was that purchase of shares was always offline either through private placement or purchase in grey market and sale was through recognized stock exchange. In this case, purchase as well as sale both are online 11 ITA No. 2507 & 2508/Chny/2018 and the assessee has paid and received consideration through cheque, therefore, case laws relied upon by the revenue has no application to the facts of present case. The learned CIT(A) without appreciating facts has simply confirmed additions and his order should be set aside.
10. The learned DR, on the other hand, strongly supporting order of the ld.CIT(A) submitted that facts brought out by the AO as well as ld.CIT(A) categorically proves that scrip was traded in stock market with exorbitant increase in price, even though financials of the company was not supported such increase in price. He further submitted that no doubt, the assessee has filed necessary evidences to prove that she has purchased and sold shares through recognized stock exchange, but what is to be seen is whether the assessee is a regular investor in shares or has made an isolated transaction of one purchase and sale in particular scrip. In this case, it is abundantly clear that the assessee was never into purchase and sale of shares, but entered into one isolated transaction of purchase and sale of shares of a specific company M/s. Tuni Textile Mills Ltd. and said company was named as penny stocks, upon consideration of facts gathered during the course 12 ITA No. 2507 & 2508/Chny/2018 of investigation . Therefore, there is no merit in the arguments taken by the assessee that long term capital gain derived from sale of shares is genuine transaction.
11. We have heard both the parties, perused material available on record and gone through orders of the authorities below along with various case laws cited by both the sides. There is no dispute with regard to facts that the assessee has purchased shares of M/s. Tuni Textile Mills Ltd. through recognized stock exchange and paid consideration by cheque. It is also not in dispute that the assessee has sold shares through recognized stock exchange and received consideration by cheque. In fact, the Assessing Officer as well as learned CIT(A) were never disputed fact that purchase and sale of shares was online and consideration was paid and received by cheque. The only dispute is that the scrip of M/s.Tuni Textile Mills Ltd. is penny stock as per investigation carried out by the Department and further, the assessee may be beneficiary of bogus long term capital gain derived from purchase and sale of shares.
13
ITA No. 2507 & 2508/Chny/2018
12. We have gone through reasons given by the Assessing Officer to arrive at a conclusion that consideration received for sale of shares of M/s.Tuni Textile Mills Ltd. is unexplained cash credit and assessable u/s.68 of the Income Tax Act, 1961 and we do not ourselves subscribe to reasons given by the Assessing Officer as well as learned CIT(A), because both authorities had proceeded predominantly on the basis of analysis of financial statements of M/s.Tuni Textile Mills Ltd. We do not find anything to comment on the analysis of financials of the company by the Assessing Officer, but we do not agree with the conclusion arrived at by the Assessing Officer only on the basis of analysis of financial statement of the company to treat consideration received for sale of transfer of shares by the assessee as unexplained cash credit. No doubt, M/s. Tuni Textile Mills Ltd. may be named as penny stock by the income tax department based on facts gathered during the course of investigation. It may also be correct that financials of the company may not support such a huge rise in share price within short span of two years. But, these two facts alone are not sufficient to draw adverse inference against the assessee, 14 ITA No. 2507 & 2508/Chny/2018 unless the AO linked transactions of the assessee to organized racket of artificial increase in share price.
13. In this case, there is no dispute with regard to fact that assessee has filed relevant documents including contract note issued by stock broker, as per which purchase and sale of shares were through online. The assessee has paid consideration for purchase of shares by cheque and had received consideration for sale of shares by cheque. The Assessing Officer has not made any adverse comments on the evidences filed by the assessee, but he has disbelieved documents filed by the assessee for simple reason that broker was kept under watch list by the SEBI for fraudulent and unfair trade practices relating to Securities Market Regulations, 1995. We find that basis on which the Assessing Officer has concluded his finding to hold the assessee is a beneficiary of bogus long term capital gain is not supported by any corroborative evidences. No doubt, broker may be kept under watch list for some fraudulent activities, but whether the assessee is part of that fraudulent activity or not has to be seen. Moreover, there is no evidence on record to show that 15 ITA No. 2507 & 2508/Chny/2018 assessee was part of the organized racket of rigging price of shares in the market. The findings of the Assessing Officer is purely based on suspicious and surmise manner. Therefore, we are of the considered view that unless the Assessing Officer brings certain evidences to support his finding that the assessee is also involved in rigging share price to get undue benefit of exemption u/s.10(38) of the Income Tax Act, 1961, the transactions of sale and purchase of shares through recognized stock exchange cannot be treated as unexplained cash credit u/s.68 of the Act. In this case, the Assessing Officer has predominantly went on the basis of theory of human behavior and preponderance of probabilities for the reason that the assessee was never involved in purchase and sale of shares, but has done isolated transaction of purchase and sale of a particular company . The said finding of the AO is contrary to facts, because, the assessee was a regular investor in shares which is evident from Demat account furnished before us, as per which along with this script, the assessee had purchased and sold number of other scripts.
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ITA No. 2507 & 2508/Chny/2018
14. Coming back to various case laws relied upon by the learned A.R for the assessee and ld. AO as well as ld. CIT(A). As we have already observed, there are divergent views of the issue by various high courts and Tribunal and said view is based facts of those case. Since it is a factual issue which can be decided on the basis of facts of each case and evidences placed on record, we do not wish to comment on various case laws relied upon by both sides.
15. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that the Assessing Officer as well as learned CIT(A) were erred in treating consideration received for sale of shares as unexplained cash credit u/s.68 of the Act. Hence, we direct the Assessing Officer to delete additions made u/s.68 of the Act.
16. In the result, appeal filed by the assessee is allowed. ITA No.2508/Chny/2018 (A.Y.2013-14):
17. The facts and issue involved in this appeal are identical to the facts and issue which we have already considered in ITA No.2507/Chny/2018 for the assessment 17 ITA No. 2507 & 2508/Chny/2018 year 2012-13, but for change in scrip traded by the assessee. The Assessing Officer has treated consideration received for sale of shares as unexplained cash credit u/s.68 of the Act, for similar reasons given for assessment year 2012-13. Therefore, we are of the considered view that reasons given by us in the preceding paragraphs in ITA No.2507/Chny/2018 shall mutatis mutandis apply to this appeal as well. Therefore, for similar reasons, we direct the Assessing Officer to delete additions made towards consideration received for sale of shares u/s.68 of the Act. In the result, appeal filed by the assessee is allowed.
18. As a result, appeals filed by the assessee for both assessment years are allowed.
Order pronounced in the open court on 8th September, 2021 Sd/- Sd/-
( वी.दग
ु ा राव) ( जी. मंजुनाथ)
(V.Durga Rao) ( G.Manjunatha )
$या यक सद&य /Judicial Member लेखा सद&य / Accountant Member
चे$नई/Chennai,
)दनांक/Dated 8th September, 2021
DS
आदे श क त+ल,प अ-े,षत/Copy to:
1. Appellant 2. Respondent 3. आयकर आय.
ु त (अपील)/CIT(A)
4. आयकर आयु.त/CIT 5. ,वभागीय त न2ध/DR 6. गाड फाईल/GF.