ACIT-27(3), MUMBAI, MUMBAI V. SIMON POULOSE PUTHANANGADY, MUMBAI

ITA 5521/MUM/2024

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The case revolves around an appeal by the Revenue Department against Mr. Simon Poulose Puthanangady, who had claimed an exemption on long term capital gains from the sale of shares under section 10(38) of the Income Tax Act, 1961. The Assessee had purchased shares of M/s. Ojas Asset Reconstruction Company Limited and sold a portion, claiming the gains as exempt. The Assessing Officer disallowed this claim based on findings from the Investigation Wing and SEBI, suspecting the transactions to be part of a scheme to obtain bogus long term capital gains. However, the Ld. Commissioner of Income Tax (Appeals) reversed this decision, citing lack of evidence linking the Assessee to any fraudulent activities and referencing relevant Supreme Court and High Court judgments that supported the Assessee's position. The Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397078 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Other Referred Cases: PCIT vs. Kuntala Mahendra, PCIT v. Indravadan Jain, HUF, CIT v. Shyam R. Pawar, PCIT v. Indravadan Jain, HUF
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI; LD.
• Assessee Lawyers: JIGAR MEHTA; LD
• Keywords: Capital Gains; Accommodation entries; Bogus
• Section: 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “B”, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No.5521/M/2024 Assessment Year: 2016-17 ACIT-27(3) 4th Floor, Room No. 423, Vashi Station Complex, Vashi-400703. Vs. Mr. Simon Poulose Puthanangady, Prop Precision Mould Craft 37 Shah Ind Estate, Deonar-400088. PAN: AAKPP9332L (Appellant) (Respondent) Present for: Assessee by : Shri Jigar Mehta, Ld. A.R. Revenue by : Shri Leyaqat Ali Aafaqui, Ld. D.R. Date of Hearing : 17.04.2025 Date of Pronouncement : 27.05.2025 O R D E R Per : Narender Kumar Choudhry, Judicial Member: This appeal has been preferred by the Revenue Department against the order dated 29.08.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2016-17. ITA No.5521/M/2024 Mr. Simon Poulose Puthanangady 2 2. The Assessee during the financial year 2013-14 had purchased 40,000 shares of M/s. Ojas Asset Reconstruction Company Limited @ Rs.10/- per share. Subsequently, the said shares were dematerialised and out of 40,000 shares, the Assessee sold 20,800 shares on a total consideration of Rs.1,39,98,220/- and consequently earned the long term capital gain of Rs.1,35,28,220/- and claimed the same as exempt u/s 10(38) of the Act. Though the Assessee, during the assessment proceedings, has claimed that the purchase and sale transactions have been carried out through banking channel and the Assessee sold the shares through online platform and duly paid the STT. The Assessee also submitted copies of balance sheet, computation of total income, all bank statements held by the Assessee, copy of debit note issued from Kamalkshimi Finance Corporation Limited, allotment letter of shares in respect of shares purchased, copy of ledger account of the Assessee maintained by the stock brokers, copies of all contract notes and summary bills qua shares sold through Inventure Growth, ledger confirmation by Inventure Growth, global report etc., however, still the Assessing Officer (AO) while relying on the investigation carried out by the Investigation Wing/Directorate, Kolkata and the modus operandi for obtaining the long term capital gain and finding of the SEBI, ultimately disallowed the said deduction claimed by the Assessee u/s 68 of the Act and consequently made the addition of Rs.1,35,28,220/- and added the same in the income of the Assessee. 3. The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner, who by considering material evidences put forward by the Assessee and the judgment of the Hon’ble Apex Court in the case of PCIT vs. Kuntala Mahendra ITA No.5521/M/2024 Mr. Simon Poulose Puthanangady 3 (2024) 160 taxmann.com 608 (SC) wherein the Hon’ble Apex Court dismissed the SLP filed against the order of the High Court, “wherein the shares were purchased via account payee cheques, held in D-Mat account over 12 months and sold through a recognised stock exchange after payment of security transaction taxed and therefore the Hon’ble High Court has affirmed the view of the authorities below that the Assessee was eligible to claim exemption u/s 10(38) of the Act for long term capital gains”, and the fact that the AO has not brought any material evidence on record to prove that the impugned transaction is found to be bogus and in the investigation report, nowhere the name of the Assessee is mentioned indicating that the Assessee has collided with his brokers’ companies, his promoters, exit providers to arrange bogus long term capital gain, ultimately allowed the claim of the Assessee and deleted the addition made by the AO. 3.1 The Ld. Commissioner while allowing the claim of the Assessee had, also taken into consideration the judgment of the Hon’ble Jurisdictional High Court in the case of PCIT v. Indravadan Jain, HUF (2023) 156 taxmann.com 605 (Bom.) which is a celebrated judgment on the issue of penny stock and wherein it was held as under: “The Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gains and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. The Assessing Officer held that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co through whom these transactions have been effected had appeared and it was evident that the broker had indulged in ITA No.5521/M/2024 Mr. Simon Poulose Puthanangady 4 price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. The Assessing Officer made addition under section 68 of the Act . On appeal the CIT(A) deleted the addition . On appeal by the Revenue, the Tribunal Affirmed the order of the CIT(A). Tribunal followed the order of Jurisdictional High Court in CIT v. Shyam R. Pawar (2015) 54 Taxmann.com 108/ 229 Taxman 256 ( Bom)(HC). On appeal by the Revenue, dismissing the appeal the Court held that 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. Order of Tribunal is affirmed.” 3.3 Thus, considering the aforesaid facts and circumstances of the case, as the Ld. Commissioner not only examined the relevant documents filed by the Assessee before the AO as well as before the CIT(A) but also analysed the peculiar facts and circumstances in totality in context of the case in hand and the relevant judgments as applicable to the instant case and then only came to the clear cut finding for allowing the claim of the Assessee u/s 10(38) of the Act and consequently deleted the addition under consideration. Thus, we are of the considered view that the order passed by the Ld. Commissioner need no interference, as the same is neither suffers from any perversity, impropriety nor illegality. Thus, the same is upheld. ITA No.5521/M/2024 Mr. Simon Poulose Puthanangady 5 4. in the result, the appeal filed by the Revenue Department stands dismissed. Order pronounced in the open court on 27.05.2025. Sd/- Sd/- (PRABHASH SHANKAR) (NARENDER KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai. "