BHAGWATI RAJARAM CHANDORA,MUMBAI V. ITO WARD 18(1)(2), MUMBAI

ITA 4786/MUM/2023

AI Insights

The case revolves around the appeal by Bhagwati Rajaram Chandora against the order of the Commissioner of Income Tax (Appeals), which upheld the additions made by the AO under sections 68 and 69C of the Income Tax Act, 1961. The additions were based on the premise that the transactions involving the sale of shares of M/s Paneta Industries Ltd. (now Aadhaar Ventures India Ltd.) were bogus and constituted accommodation entries. The AO's decision was influenced by a report from the Investigation Wing, which suggested that the shares were part of a scheme to provide bogus long-term capital gains. The assessee contested that all transactions were genuine, supported by substantial documentary evidence including broker's contract notes, bank statements, and demat statements. The Tribunal, after reviewing the evidence and the submissions, found that the AO had not properly considered the assessee's evidence and had not conducted necessary verifications or examinations of the broker or the stock exchange.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33053 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONIKA H. PANDE
• Assessee Lawyers: BHUPENDRA SHAH
• Keywords: Unexplained cash credit; Unexplained expenditure; Bogus purchase; Capital Gains; Third party statement; Search and seizure; Accommodation entries; Opportunity of cross examination; Borrowed satisfaction; Bogus
• Section: 148; 143(3); 143(2); 250; 143(1); 271(1)(c); 68; 133(6); 69C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.4786/MUM/2023 (Assessment Year 2011-12) Bhagwati Rajaram Chandora, Room No.30, 3rd Floor, Ganesh Bhuwan, 80 Ramwadi, Kalbadevi Road, Mumbai – 400002 PAN : AECPC8718H ............... Appellant v/s ITO, Ward – 18(1)(2), Mumbai - 400002 ……………… Respondent Assessee by : Shri Bhupendra Shah Revenue by : Ms. Monika H. Pande, Sr.AR Date of Hearing – 29/01/2025 Date of Order - 04/04/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal challenging the impugned order dated 08/11/2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2011-12. 2. In this appeal, the assessee has raised the following grounds: - ITA No.4786/Mum/2023 (A.Y. 2011-12) 2 “1. In the facts and circumstances of the case and in law, Learned Assessing Officer erred in passing order u/s 143(3) r.w.s. 147 merely on the basis of borrowed satisfaction, presumption and surmises. 2. In the facts and circumstances of the case and in law, Learned Assessing Officer erred in making addition by treating value of Sales Consideration of Rs.93,24,485 as Cash Credit u/s 68 of the Income tax Act, 1961 without appreciating that the Appellant has proved genuineness of the transactions by submitting copies of the Brokers Contract Notes, Ledger Account, Demat Statement, Bank Passbook for Purchase & sale of shares and also: a. On the basis of suspicion and presumption b. Based on third party statements c. Without any proof of refund of cash d. Based on findings of the Investigation Wing e. Based on findings of various sources. f. On the basis of share purchase/sale analysis g. On the basis of details of exit providers h. Without cross examination of the parties i. Without furnishing copies of the statement j. By making only guesswork & overlooking documents k. Without waiting for order to be passed u/s 144A. 3. In the facts and circumstances of the case and in law, the Learned Assessing Officer erred in making additions by treating Notional Cash Commission of Rs. 1,86,489/- as unexplained expenditure u/s 69C of the Income Tax Act, 1961 without appreciating that there was no evidence of payment of commission in Cash and that the Appellant has proved genuineness of the transaction by submitting copies of the Brokers Contract Notes, Ledger Account, Demat Statement, Bank Passbook and other documents. 4. In the facts and circumstances of the case and in law, the learned A.O. erred in making above additions without any verification u/s 133(6) or summons u/s 131. 5. In the facts and circumstances of the case and in law, the learned A.O. erred in levying interest u/s 234 &initiating penalty u/s 271[1][c]. 6. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A), NFAC, Delhi erred in confirming the above additions by overlooking submissions given and thereby passing the order not tenable in law.” 6. The sole grievance raised by the assessee in the present appeal pertains to the addition made under sections 68 and 69C of the Act by treating the transaction in shares by the assessee as bogus. ITA No.4786/Mum/2023 (A.Y. 2011-12) 3 7. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and for the year under consideration, filed his return of income on 31/07/2011, declaring a total income of ₹ 7,47,130. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the information was received from the office of the DGIT(Inv.), Ahmedabad, regarding a search and seizure action conducted in the case of Mr. Shirish Chandrakant Shah on 09/04/2013, wherein it was found that Mr. Shirish Chandrakant Shah was engaged in providing accommodation entries of bogus purchases and bogus long term capital gains/short-term capital loss through various companies, including M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd. to a number of beneficiaries. On further investigation by the Assessing Officer (“AO”), it was found that the assessee in his return of income for the year under consideration claimed exemption under section 10(38) of the Act on the long-term capital gains earned from the sale of shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd. Accordingly, notice under section 148 of the Act was issued on 28/03/2018, and proceedings under section 147 of the Act were initiated. In response to the notice issued under section 148 of the Act, the assessee filed his return of income on 21/04/2018, declaring a total income of ₹ 7,74,130. After receipt of the reasons recorded for reopening the assessment, the assessee filed his objections, which were disposed off vide letter dated 22/11/2018. Thereafter, statutory notice under section 143(2) of the Act was issued and served on the assessee. The AO, vide order dated 15/12/2018 passed under section 143(3) read with section 147 of the Act, took into consideration the findings of the ITA No.4786/Mum/2023 (A.Y. 2011-12) 4 Investigation Wing, wherein it was found that M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., is one of the penny stock companies controlled by Mr. Shirish Chandrakant Shah, which has provided bogus entries to the large no. of beneficiaries. The AO also took into consideration the modus operandi adopted by penny stock companies for rigging the price of the shares through circular trading. Accordingly, the AO came to the conclusion that the shares traded value of ₹ 93,24,485 in the scrip of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., is an accommodation entry, which is nothing but the return of amount in lieu of cash that the assessee would have paid to hawala operators. Therefore, the AO held that the sum of ₹ 93,24,485 represents the unexplained cash credit and added the same to the total income of the assessee under section 68 of the Act. Further, the AO also made an addition @2% on account of the alleged payment of commission for availing accommodation entries and made an addition of ₹ 1,86,489. 8. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the additions made by the AO under section 68 and section 69C of the Act. Being aggrieved, the assessee is in appeal before us. 9. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee purchased and sold the shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., on the Bombay Stock Exchange (“BSE”). The learned AR submitted that the entire transaction of purchase and sale of shares was on the floor of the stock exchange. The learned AR further submitted that the assessee furnished various evidence to ITA No.4786/Mum/2023 (A.Y. 2011-12) 5 prove the genuineness of the transaction. However, there is no adverse remark against them by the lower authorities. It was further submitted that no cash was paid by the assessee for the purchase of shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd. The learned AR also submitted that the AO neither examined the broker of the assessee nor issued any summons to the stock exchange. 10. On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the lower authorities. 11. We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of the information received from the Investigation Unit, Ahmedabad, that the assessee is a beneficiary of bogus entries of long-term capital gain proceedings under section 147 of the Act were initiated in the case of the assessee. On verification of the information, it was noticed by the AO that the assessee has invested in the shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., and sold the same at the sale value of ₹ 93,24,485. By taking into consideration the information received from the Investigation Wing, the AO alleged that the trading in scrip of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., which is controlled by Mr. Shirish Chandrakant Shah, was a manipulated affair to generate entries of bogus long-term capital gain, facilitating tax evasion. The AO also alleged that during the search action in the case of Mr. Shirish Chandrakant Shah, sworn statements of key persons were recorded, the modus operandi was revealed, and it was admitted that all the companies controlled by him are in ITA No.4786/Mum/2023 (A.Y. 2011-12) 6 the business of providing accommodation entries only. Since the assessee has traded in scrip of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., which is controlled by Mr. Shirish Chandrakant Shah, the AO alleged that the assessee is one such person who has availed accommodation entries of bogus capital gain. The AO also analysed the variation in the price of shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., over the years. It was also alleged that the cash has been routed from various accounts to provide accommodation entry to the assessee of bogus long-term capital gains. Accordingly, the AO added the entire sale consideration of ₹ 93,24,485 under section 68 of the Act and also made an addition on account of the alleged payment of commission @2% amounting to ₹ 1,86,489. 12. As per the assessee, he purchased 2,00,000 shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., on 15/06/2009 through its broker, Anand Rathi Securities Ltd, on the stock exchange for a total consideration of ₹ 9,97,993. The assessee has furnished a copy of the contract note/bill for the purchase of shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., which forms part of the paper book on page 38. From the copy of sale bills issued by the assessee’s broker, Anand Rathi Securities Ltd, forming part of the paper book from pages 42-56, we find that the assessee sold these shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., on 28/07/2010, 19/08/2010 and 01/09/2010 for a total consideration of ₹ 93,24,485, after payment of the STT. In order to prove the genuineness of the transaction, the assessee has ITA No.4786/Mum/2023 (A.Y. 2011-12) 7 also placed on record the bank statement highlighting the purchase and sale of shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., which forms part of the paper book from pages 31-37. As per the assessee, these shares, when purchased, were in DEMAT form only, and they were kept in the DEMAT account No. 1201060000572930. We find that the copy of the DEMAT statement was also furnished by the assessee before the lower authorities. The assessee has also placed on record the ledger account of the assessee in the books of the broker, which forms part of the paper book on page 57. 13. From all the above evidence forming part of the paper book, it is evident that no cash was paid by the assessee for purchase of 2,00,000 shares of M/s Paneta Industries Ltd., now known as Aadhaar Ventures India Ltd., and the entire purchases and sales transaction was carried out on the floor of the stock exchange through a SEBI registered stock-broker. We find that all the above evidences were furnished by the assessee to prove the genuineness of the share transaction before the AO. However, the AO, without commenting on any of the evidence submitted by the assessee, placed reliance upon the report of the Investigation Wing, Ahmedabad, and the price fluctuation of shares of the entities in which the assessee has transacted. The findings of the Investigation Wing, as noted in the assessment order, appear to be mere general findings of the investigation without any adverse observations regarding the assessee. Further, the Revenue has failed to prove how the said findings have any relevance to the present case in view of the facts and circumstances as noted in the foregoing paragraphs. There is also no ITA No.4786/Mum/2023 (A.Y. 2011-12) 8 reference to any portion of sworn statements wherein any adverse observation against the assessee has been noted by the Investigation Wing. The price fluctuation of shares of the entities in which the assessee has transacted also does not support the case of the Revenue, as no material has been brought on record to show that the assessee was involved in such price manipulation even after purchasing and selling the shares on the stock exchange through a SEBI registered stock-broker. Therefore, in the present case, it is sufficiently evident that the AO, without finding any fault with the evidence submitted by the assessee, proceeded to treat the transaction as non-genuine and the long-term capital gains earned by the assessee as bogus. We also find that the AO did not issue any summons or examine the broker of the assessee, i.e. Anand Rathi Securities Ltd. 14. Therefore, in view of the facts and evidence placed on the record by the assessee, we find no merit in the impugned order upholding the addition made under section 68 of the Act and disallowing the exemption of long-term capital gains claimed by the assessee. Consequently, we also do not find any merit in the addition on account of the alleged commission payment amounting to ₹ 1,86,489. Accordingly, the additions made by the AO are deleted, and the Grounds No.1-4 raised in assessee’s appeal are allowed. 15. The issue arising in Ground No. 5, raised in assessee’s appeal, pertaining to levy of interest under section 234 is consequential in nature, and therefore, need no separate adjudication. Further, the ground challenging the initiation of penalty under section 271(1)(c) of the Act is premature in nature, and therefore, is dismissed. ITA No.4786/Mum/2023 (A.Y. 2011-12) 9 16. In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 04/04/2025 Sd/-- B.R. BASKARAN ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 04/04/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "