AAKASH DILIP DOSHI,MUMBAI V. ITO-19(1)(1), MUMBAI

ITA 4703/MUM/2023

AI Insights

The case revolves around the appeal by Aakash Dilip Doshi against the order of the Ld.CIT(A), which confirmed the additions made by the Assessing Officer under sections 68 and 69C of the Income Tax Act, 1961. The additions were related to the sale proceeds of shares of a company identified as a 'penny stock' and alleged expenses incurred in procuring bogus long term capital gains. The Tribunal examined the evidence and found that the transactions were genuine, supported by banking transactions and dematerialization of shares, and that there was no direct evidence linking the assessee to any price manipulation or rigging of shares.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 24106 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 21-12-2023
• Other Referred Cases: Smt. Asha Rajendra Gupta vs. ACIT, Aakruti Ketan Mehta vs. ITO, Omar Salav Mohamed Sait vs. CIT, Shyam Pawar vs. CIT, PCIT vs. Ziauddin A Siddique, CIT vs. Jamnadevi Agarwal, PCIT vs. Indravadan Jain (HUF)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL SHINDE
• Assessee Lawyers: DHARMESH SHAH
• Keywords: Set aside; Question of law; Unexplained cash credit; Capital Gains; Scheme of amalgamation; Penny stocks; Bogus
• Section: 68; 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “A” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA No. 4703/Mum/2023 Assessment Year : 2014-15 Aakash Dilip Doshi, 408/409, 4th Floor, Jivan Vihar, Manav Mandir Road, Malbar Hill, Walkeshwar, Mumbai PAN : AILPD8283D vs. Income Tax Officer–19(1)(1), 2nd Floor, Matru Mandir, Tardeo, Mumbai (Appellant) (Respondent) Assessee by : Shri Dharmesh Shah Revenue by : Shri Sunil Shinde, Sr.DR Date of Hearing : 12/11/2024 Date of Pronouncement : 26/11/2024 PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dated 16-08-2023 passed by Ld.CIT(A), NFAC, Delhi and it relates to the Assessment Year (AY.) 2014-15. The assessee is aggrieved by the decision of the Ld.CIT(A) in confirming the addition of Rs.2.41 crores made by the Assessing Officer (AO) u/s.68 of the Income Tax Act, 1961 („the Act‟), being sale proceeds of shares of alleged penny stock company and also addition of Rs.9.23 lakhs made u/s. 69C of the Act towards estimated expenses incurred in procuring bogus long term capital gains. 2 ITA No. 4703/Mum/2023 2. The facts relating to the above said issue are discussed in brief. The assessee had claimed exemption of long term capital gain arising on sale of shares amounting to Rs.2,30,75,760/- u/s. 10(38) of the Act. The assessee had earned above said long term capital gain on sale of shares of M/s Sunrise Asian Ltd (earlier known as M/s Santoshi Maa Tradelinks Ltd). The AO received information from the Investigation Wing of Kolkata that certain brokers are involved in manipulating the prices of small companies (called “penny stock”) in order to generate bogus capital gains/losses. It was also informed that the “Sunrise Asian Ltd” is also one of the penny stocks. The assessee had sold 50,000 shares for a consideration of Rs.2,40,75,760/- and declared Long term capital gain of Rs.2,30,75,760/-, which was claimed as exempt u/s.10(38) of the Act. Based on the information so given by the Investigation Wing, the AO took the view that the long term capital gains declared by the assessee is not genuine one. 3. The assessee had purchased 50,000 shares of M/s.Sunrise Asian Ltd., for a consideration of Rs.10.00 lakhs on 05-11-2011. He sold all the shares from 25-10-2013 to 27-11-2013 for an aggregate value of Rs.2,40,75,760/-. Since the shares of above said company was identified as penny stock, the AO extensively relied upon the report given by the Investigation Wing to support his view that the long term capital gains declared by the assessee was not genuine. He observed that the financial results of the company do not justify steep rise in the prices shares of above said company. He also noticed that the above said company was declaring very low income and the prices of shares were not commensurate with the income of the company. The AO also referred to the price movement charts prepared by the Investigation Wing, wherein it was observed that the price movements in the form of ups and downs has happened in batches, which was considered as manipulation of price movements. The AO also referred to certain statements taken by the Investigation wing during the course of search, 3 ITA No. 4703/Mum/2023 wherein they had admitted that they were operating the shares of above said company. 4. Based on the above said information, the AO sought explanations from the assessee. In response thereto, the assessee furnished all evidences in support of purchase and sale of shares of M/s.Sunrise Asian Ltd. The AO also issued summons u/s.131 of the Act to the assessee and recorded a statement from her. Even though the AO did not find any adverse thing in the statement recorded from the assessee, yet he took adverse view that the purchase and sale of shares undertaken by the assessee are not genuine and accordingly held that the assessee‟s claim for exemption u/s.10(38) of the Act cannot be allowed. 5. Accordingly, the AO rejected the claim for exemption u/s.10(38) of the Act and assessed the entire sale consideration of Rs.2,40,75,760/- as unexplained cash credit u/s.68 of the Act. The AO also took the view that the assessee should have incurred expenses in procuring the bogus long term capital gains. The AO estimated the same at 4% of the sale consideration, which worked to Rs.9,23,030/-. Accordingly, the AO assessed the above said amount as unexplained commission expenditure u/s 69C of the Act. 6. The Ld.CIT(A) confirmed both the additions and hence the assessee has filed this appeal. 7. The Ld.AR submitted that the AO has placed his reliance entirely on the generalised report given by the investigation wing. He submitted that the AO did not find fault with any of the documents furnished by the assessee to prove the genuineness of purchases. He further submitted that neither the assessee nor the above said broker has been subjected to any enquiry by SEBI. 4 ITA No. 4703/Mum/2023 8. He submitted that the assessee was allotted 50,000 shares of M/s. Santoshima Tradelinks Ltd. Later, the above said company was amalgamated with M/s.Sunrise Asian Ltd and the assessee was allotted 50000 shares of M/s.Sunrise Asian Ltd. They were dematerialised and later sold in the stock exchange. He submitted that the consideration for purchase and sales were paid/received through banking channels. He submitted that the assessing officer did not find any defect in any of the documents furnished by the assessee to prove the factum of purchase and sale of shares. Accordingly, the Ld.AR contended that there is no reason to suspect the genuineness of purchase and sale of shares merely on the basis of a generalised report given by the investigation wing. The Ld.AR also submitted that the AO has not shown that the assessee was part of the group, which was manipulating the prices. He submitted that the assessee has purchased and sold shares as an ordinary investor. Accordingly, he submitted that there is no reason to suspect the long term capital gains declared by the assessee. The Ld.AR relied upon various decisions to support his contentions. 9. On the contrary, the Ld.DR submitted that the assessee has purchased shares in the off market. He submitted that the AO has proved that the financials of M/s.Sunrise Asian Ltd., do not justify the market price of shares. He submitted that the Balance Sheet and Profit and Loss Account details have been extracted by the AO in the assessment order and the financial fundamentals are poor. These aspects would prove that M/s.Sunrise Asian Ltd., was only having paper transactions. The Ld.DR further placed his reliance on the decisions rendered by the Co-ordinate Bench in the case of Smt. Asha Rajendra Gupta vs. ACIT (ITA No.7712/Mum/2019 dated 13-04-2023) and Aakruti Ketan Mehta vs. ITO (ITA No.53/Mum/2023 dated 31-01- 2024), wherein the ITAT had confirmed similar type of addition made by the AO. 5 ITA No. 4703/Mum/2023 10. In the rejoinder, the Ld.AR submitted that it is wrong to say that the financial strength of M/s.Sunrise Asian Ltd., was weak. He submitted that the turnover of above said company has increased from 0.63 crores in FY 2010-11 to Rs.169.89 crores in FY.2014-15. When there is increase in turnover, the prices of shares is bound to increase. With regard to the reliance placed by Ld.DR on the decision rendered by the Tribunal in the case of Smt Asha Rajendra Gupta and M/s Aakruti Ketan Mehta (supra), he submitted that the decision has been rendered in that case on the basis of facts prevailing therein and further they did not consider the decisions rendered by the Hon‟ble Bombay High Court. 11. We heard rival contentions and perused the record. We notice that the assessing officer has primarily placed reliance on the report given by the Investigation Wing of the Income Tax Department, Kolkata in order to arrive at the conclusion that the long term capital gains reported by the assessee is bogus in nature. We notice that the investigation report prepared by Investigation Wing, Kolkata is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. We notice that the AO has placed reliance on the said report without bringing any material on record to show that the transactions entered by the assessee were found to be a part of manipulated transactions, i.e., it was not proved that the assessee has carried out the transactions of purchase and sale of shares in connivance with the people who were involved in the alleged rigging of prices. The Ld.AR also submitted that the regulator of stock market SEBI has not conducted any enquiry against the assessee or its broker. 12. In the statement recorded from the assessee, the AO could not find anything wrong. We also notice that the assessee has (a) purchased these shares by paying consideration through banking channels. 6 ITA No. 4703/Mum/2023 (b) shares of M/s.Sunrise Asian Ltd were allotted to the assessee in a scheme of amalgamation approved by the Hon‟ble High Court of Bombay. (c) dematerialized the shares and kept the same in the Demat account. (d) sold the shares through stock exchange platform (e) received the sale consideration through banking channels. Further, the shares have entered and exited the demat account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Further, the AO has not brought on record any material to show that the assessee was part of the group which involved in the manipulation of prices of shares. Hence, we are of the view that there is no reason to suspect the purchase and sale of shares undertaken by the assessee. 13. Before us, the Ld.AR placed his reliance on various decisions rendered by the Co-ordinate Benches. We also notice that the Hon‟ble Supreme Court has held in the case of Omar Salav Mohamed Sait (1989)(37 ITR 151)(SC) that no addition can be made on the basis of surmises, suspicion and conjectures. We may also refer to the some of the decisions rendered by the Hon‟ble jurisdictional Bombay High Court. In the case of Shyam Pawar (54 taxmann.com 108)(Bom), the Hon‟ble Bombay High Court has observed as under:- “3. Mr.Sureshkumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that there was some cash transaction through these suspected brokers, on whom there was an investigation conducted by the 7 ITA No. 4703/Mum/2023 Department. Once the onus on the Department was discharged, according to Mr.Sureshkumr, by the Revenue-Department, then, such a finding by the Tribunal raises a substantial question of law. The Appeal, therefore, be admitted. 4. Mr.Gopal, learned Counsel appearing on behalf of the Assessee in each of these Appeals, invites our attention to the finding of the Tribunal. He submits that if this was nothing but an accommodation of cash or conversion of unaccounted money into accounted one, then, the evidence should have been complete. Change of circumstances ought to have, after the result of the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he submits that the Appeals do not raise any substantial question of law and deserve to be dismissed. 5. We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion 8 ITA No. 4703/Mum/2023 that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr.Sureshkumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs. 8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted 9 ITA No. 4703/Mum/2023 into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.” 14. In the case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022), the Hon‟ble Bombay High Court has observed as under:- “2. We have considered the impugned order with the assistance of learned counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against the assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.” 15. Further, in the case of CIT vs. Jamnadevi Agarwal (20 taxmann.com 529 (Bom), the Hon‟ble Bombay High Court has held that the transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. In the case of PCIT vs. Indravadan 10 ITA No. 4703/Mum/2023 Jain (HUF) (ITA No. 454 of 2018)(Bom), the broker through whom, the assessee had carried out the transactions have been alleged to have been indulged in price manipulations and the SEBI had also passed an order regarding irregularities and synchronized trades carried out in the shares by the said broker. However, the evidences furnished by the assessee with regard to purchase and sale of shares were not doubted. Under these set of facts, the Hon‟ble Bombay High Court held as under:- “….The CIT(A) came to the conclusion that respondent bought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slips and also received payment from Kolkatta Stock Exchage. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT(A) found there was no reason to add the capital gains as unexplained cash credit under section 68 of the Act. The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.” 16. The Ld.DR has placed reliance on the decision rendered by the Co-ordinate Bench in the case of Smt. Asha Rajendra Gupta (supra) & Aakruti Ketan Mehta (supra), wherein the Tribunal had confirmed the additions relating to long term capital gains arising on sale of penny stock. We have gone through the said order passed by the Tribunal. First of all, we notice that none of the binding decisions rendered by the Hon‟ble jurisdictional Bombay High Court has been referred to by the 11 ITA No. 4703/Mum/2023 Tribunal. Secondly, it has been mentioned clearly that the decision has been rendered on the basis of facts prevailing in that case. There cannot be any dispute that the question as to whether the capital gain declared by the assessee is genuine or not has to be decided on the basis of facts prevailing in each case. Accordingly, we are of the view that the decision rendered in the above said case cannot be taken support of by the Revenue. 17. Accordingly, in the facts and circumstances of the case, we are of the view that the decisions rendered by the jurisdictional Hon‟ble Bombay High Court in the cases cited above shall apply to the present case, since the AO has not established that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee. 18. We noticed earlier that the AO has assessed the Sale consideration of shares as unexplained cash credit u/s 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the revenue. The sale of shares has taken place in the online platform of the Stock Exchange and the sale consideration has been received through the stock broker in banking channels. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of sec. 68 of the Act. 19. Since we have held that the sale transactions of shares cannot be doubted with, the addition made by the AO with regard to estimated commission expenses is also liable to be deleted. 20. In view of the foregoing discussions, we hold that the sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s.68 of the Act and the hence the assessee should be granted exemption of long term capital gains on sale of shares of above said company u/s.10(38) of the Act. In view of the above said finding, the addition relating to estimated commission 12 ITA No. 4703/Mum/2023 expenses is also liable to be deleted. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned additions made by him. 21. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 26-11-2024 Sd/- Sd/- [RAJ KUMAR CHAUHAN] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 26-11-2024 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, “A” Bench, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "