HULASH CHAND,NEW DELHI V. PCIT DELHI-20, NEW DELHI

ITA 2514/DEL/2024

AI Insights

The case revolves around the appeal by Hulash Chand against the order of the PCIT, which set aside the assessment order passed by the A.O. for the Assessment Year 2014-15. The A.O. had initially accepted the LTCG from transactions in the penny stock Trinity Tradelink Ltd. as genuine after a detailed examination of the documents provided by the assessee. However, the PCIT invoked Section 263, claiming the assessment was erroneous and prejudicial to the interest of the revenue, primarily based on a report from the Investigation Wing of Kolkata. The Tribunal found that the PCIT's order lacked proper basis as the A.O. had adequately addressed the issues raised during the reassessment proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 22980 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: R.S.AHUJA; PUSHPDEEP
• Keywords: Set aside; Capital Gains; Revision of order; Penny stocks
• Section: 144; 143(3); 142(1); 263

Judgement Text

" 1 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘B’ NEW DELHI) BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SH. YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 2514/Del/2024 (A.Y. 2014-15) Hulash Chand 80, Savita Vihar, Delhi PAN: ABGPC3418F Vs. PCIT Vikas Bhawan, IP Estate, New Delhi Appellant Respondent Assessee by Sh. R. S. Ahuja, CA and Sh. Pushpdeep Singh, Adv Revenue by Sh. Surender Pal, DR Date of Hearing 09/01/2025 Date of Pronouncement 29/01/2025 ORDER PER YOGESH KUMAR, U.S. JM: This appeal is filed by the Assessee against the order of the Principal Commissioner of Income Tax, (‘PCIT’ for short) Delhi-20 dated 31/03/2024 for the Assessment Year 2014-15. 2. The Grounds of Appeal are as under: - “1. That the Ld. PCIT has erred in invoking the provision of Section 263 of the Income Tax Act, 1961. II. That the Ld. PCIT has erred in not appreciating the fact that the reopening of assessment of the Assessee was done for the sole reason of report from Investigation Wing Kolkata regarding Trinity Tradelink being a penny stock and the same report is relied upon by the PCIT for invoking the provisions of section 263 of the IT Act, 1961. III. That the Ld. PCIT has erred in not appreciating that the Ld. A.O. has sought detailed response 2 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT and documents from the Assessee to prove the genuineness of the trades placed by the Assessee in the scrip Trinity Tradelink Ltd vide its notice u/s 142(1) of the Act, 1961 dated 25.01.2022 & 10.03.2022 and the Assessee duly provided the computation of income, proof of purchase of equity shares, Demat Statement, Broker statement and bank statement along with explanation vide its replies dated 31.01.2022, 02.02.2022 and 12.03.2022. 2 . IV. That the Ld. PCIT has erred in not appreciating that the Ld. A.O. has duly applied his mind and accepted the submissions of the Assessee which is evident from the para 2 & 3 of the Assessment Order, therefore it is not permissible as per law for the PCIT to substitute his mind over the Ld. A.O's mind. The Ld. A.O. has duly collated the documents furnished by the Assessee, have examined them and after due diligence completed the Assessment of the Assessee. V. That the Ld. PCIT has erred in not taking on record the reply dated 13.04.2024 of the Assessee filed on Income Tax Portal in the E- proceedings vide acknowledgement number 141189301130324 in response to the SCN dated 06.03.2024 issued by PCIT, Delhi-20. VI. That the Id. PCIT erred in passing the Impugned Order ex-parte and in violation of Principles of Natural Justice. 3. VII. That the Ld. PCIT erred in not appreciating that the question of genuineness of the LTCG claimed by the Assessee has been dealt in detail during the 147 proceedings by the Ld. A.O. VIII. That the Ld. PCIT erred in not doing independent verification of the report of the Investigation wing Kolkata and has simply relied upon the information therein, it failed to take on record the Orders of Whole Time Member of SEBI and Hon'ble Securities Appellate Tribunal which have expressly held that the Trinity Tradelink Ltd is not a shell company. IX. That the Impugned Order is passed without application of mind by the Ld. PCIT. X. That the Ld. PCIT erred in holding that the assessment \"is erroneous in so far as it was prejudicial to the interest of revenue\". XI. That the Appellant craves leave to add, alter, amend or drop any of the above grounds at or before the hearing.” 3 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT 3. Brief facts of the case are that, the Assessee filed return for Assessment Year 2014-15 declaring total income of Rs. 2,59,030/- by claiming exempt Long Term Capital Gain of Rs. 96,44,515/- resulting from trade in script of M/s Trinity Tradelink Ltd. of total value of Rs. 97,68,000/-. The case of the Assessee was reopened by issuing notice u/s 148 of the Income Tax Act, 1961 (‘Act’ for short) dated 31/03/2021. The Assessee filed return of income in response to notice u/s 148 and also submitted certain documents to the A.O. The Ld. A.O. after examination of all the documents and after considering the submission of the Assessee, accepted the Long Term Capital Gain as genuine and framed assessment order accepting the returned income of the Assessee. 4. The Ld. PCIT issued show cause notice on 06/03/2024 in exercising the power conferred u/s 263 of the Act. The Assessee response to the show cause notice. An order u/s 263 of the Act came to be passed on 31/03/2024 wherein the Ld. PCIT held that the assessment order passed by the A.O. is erroneous, in so far as, it is prejudicial to the interest of the Revenue, accordingly, set aside the assessment order dated 23/03/2022 passed u/s 147 r.w. Section 144B of the Act for Assessment Year 2015-16. Aggrieved by the order of the Ld. PCIT, the Assessee preferred the present Appeal on the Grounds mentioned above. 4 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT 5. The Ld. Counsel for the Assessee submitted that invocation of provisions of Section 263 of the Act is erroneous as the twin conditions as provided u/s 263 of the Act has not been satisfied. Further submitted that, the Ld. PCIT recorded incorrect finding that M/s Trinity Tradelink Ltd. has accepted before the SEBI that it is a shell Company which is contrary to the order and investigation conducted by the SEBI. The Ld. Counsel further submitted that at the time of framing of assessment u/s 147 of the Act, there was no order of the SEBI, therefore, the Ld. PCIT committed error in relying on the order of the SEBI which is even otherwise has not recorded any adverse findings against M/s Trinity Tradelink Ltd. Further submitted that the Ld. PCIT failed to consider that even the reasons for reopening were not due to any report of SEBI. Further submitted that the issue of Long Term Capital Gain has been examined by the A.O. by collecting the data and documents and all relevant materials and after due diligence, the A.O. completed the assessment u/s 143(3) r.w. Section 147 r.w. Section 144 of the Act. The Ld. Counsel for the Assessee relying on various judicial pronouncements sought for allowing the Appeal. 6. Per contra, the Ld. Departmental Representative submitted that the Ld. A.O. has not made any enquiry and verifications which should have been made. The A.O. has mechanically accepted the reply filed by 5 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT the Assessee and held that the capital gain earned on transfer of shares of M/s Trinity Tradelink Ltd. were genuine and further submitted that the SEBI has also amongst various penalty and declared M/s Trinity Tradelink Ltd. as a shell company itself declared as shell company and the said Company before the SEBI. The Ld. Departmental Representative submittedthat the Ld. PCIT has rightly invoked the Explanation 2 to Section 263 of the Act as in the opinion of the Ld. PCIT, the assessment order passed by the A.O. is deemed to be erroneous, in so far as prejudicial to the interest of the Revenue, therefore, there is not error or infirmity in the order of the PCIT, thus, sought for dismissal of the Appeal of the Assessee. 7. We have heard both the parties and perused the material available on record. The case of the Assessee was reopened by issuing notice u/s 148 of the act on 31/03/2021 based on the information from Investigation conducted by Income Tax Department. The gist of the information is as under: - “Investigation conducted by Income Tax Department which revealed that script namely Trinity Tradelink Ltd is a penny stock and suspecting that such penny stock scripts are being used by beneficiaries to book non-genuine long term capital gain in order to escape paying tax on such consideration. It is said that quite likely gains booked by the assessee of Rs. 97,68,000 is not genuine. Further it was stated that this is 6 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT based on the information received in this office, as well as independent enquiries to corroborate the same.” 8. The reason for reopening are reproduced as under:- “The assessee had been involved in transactions in the penny stock scrip Sharp Trad F (name changed to Trinity Tradelink Ltd., scrip code 512417), while being involved in trades resulting in a trade value/sale of Rs.97,68,000/-. It is pertinent to note that the issue of penny stocks have been examined in considerable detail by the Income Tax Department, where it has been found that such scrips are used by beneficiaries to book non-genuine long-term capital gains/capital loss/trading loss in order escape paying tax on such consideration. Further investigation revealed that scrip namely Sharp Trad F is a penny stock, and quite likely that the gains/losses booked by the assessee in respect of the same are not genuine. This is based on the information received in this office, as well as independent enquiries to corroborate the same.” 9. The Assessee filed following documents in support of his submission before the A.O. in order to prove the genuineness of the trades executed by the Assessee. a. DEMAT statement. [Refer Page No. 109] b. Copy of Account of Parasram Holdings Pvt. Ltd. [Refer Paperbook Page No. 103] c. Net Summary of Gain Loss. [Refer Paperbook Page No. 102] d. Bank Statement. [Refer Paperbook Page No. 104-108 & 112] e. Proof of purchase of equity shares. [Refer Paperbook Page No. 110-112]. 10. After considering the reply filed by the Assessee and the document produced thereon, the A.O. was fully satisfied about the genuineness of 7 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT the transition and credits appearing in the bank account, accepted the Long Term Capital Gain as per Section 10(38) of the Act as genuine and framed the assessment order accepting in the returned income of the Assessee. From the above, it is found that, it is not the case of no enquiry conducted by the A.O., on the other hand. The Assessee was re- opened in respect of the transaction made with M/s Trinity Trade Link Ltd. Company on the issue of Long Term Capital Gain and the Assessee produced all the relevant documents and after verification of the documents and due diligence. The Ld. A.O. fully satisfied about the genuineness of the transaction and accepted the exemption of LTCG as per Section 10(38) of the Act, therefore, in our considered opinion, the Ld. PCIT committed error in invoking provision of Section 263. 11. Apart from the same, the Ld. PCIT has observed that the said M/s Trinity Tradelink Ltd. has accepted before the SEBI that it is a shell Company. As per the ld. Assessee's Representative, the said finding of the PCIT is contrary to the order and the investigation conducted by SEBI and the same was not disturbed by the Hon’ble SAT. It is found that as on the date of issuing notice u/s 148 of the Act i.e. on 31/03/2021 and as on the date of passing assessment order u/s 147 of the Act i.e. on 14/03/2022, there was no such order of the SEBI and the SEBI has passed the order only on 29/06/2022, thus at no stretch 8 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT of imagination, the A.O. could take cognizance to the findings of either SEBI or SAT orders. Nevertheless, it is found that neither the SEBI or the SAT have not imposed any penalty for fraudulent and unfair trade practices on the M/s Trinity Trade Link Ltd. Thus, the Ld. PCIT committed error in observing that M/s Trinity Tradelink Ltd. has accepted before the SEBI that it is a shell company. Thus, the reason assigned for invocation of the provisions of Section 263 of the Act suffers infirmity. 12. Considering the above facts and circumstances, we find merits in the Grounds of appeal of the Assessee, accordingly, we set aside the impugned order of the Ld. PCIT dated 31/03/2024. 13. In the result, the Appeal of the Assessee is allowed. Order pronounced in the open court on 29th January, 2025 Sd/- Sd/- (M. BALAGANESH) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 29.01.2025 R.N, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI 9 ITA No. 2514/Del/2024 Hulash Chand Vs.PCIT "