Chandraprakash Jamnalal Kabra, Ahmedabad V. The Income Tax Officer, Ward-1(2)(1), Ahmedabad

ITA 100/AHD/2023

AI Insights

The case revolves around the appeal by Chandraprakash Jamnalal Kabra against the order of the CIT(A), National Faceless Appeal Centre, which upheld the additions made by the Assessing Officer regarding unexplained income from the sale of shares. The Assessing Officer had made additions under Section 69A of the Income Tax Act, 1961, alleging that the sales proceeds from shares of Twenty First Century (India) Limited and RIDS Securities Limited were unexplained. The Tribunal examined the evidence provided by the assessee, including contract notes, bank statements, and Demat statements, and found that the transactions were genuine and conducted through proper channels. The Tribunal criticized the Assessing Officer for relying on general assumptions and not providing specific evidence linking the assessee to any wrongdoing.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129214 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-05-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 15-02-2023
• Other Referred Cases: Durga Prasad More vs. CIT, Sumati Dayal vs. CIT, Swati Bajaj vs. CIT, Udit Kalra vs. ITO
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Source of fund; Scheme of amalgamation; Penny stocks
• Section: 148; 142(1); 143(2); 69A

Judgement Text

ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 1 of 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.100/Ahd/2023 Assessment Year: 2012-13 Chandraprakash Jamnalal Kabra, vs. Income Tax Officer, A-3, Ghanshyam Apartment Part-1, Ward 1(2)(1), Ahmedabad. Opp. New Madhupura Market, Shahibaug, Ahmedabad – 380 004. [PAN – AFMPK 3584 J] (Appellant) (Respondent) Assessee by : Shri Vinit Moondra, AR Revenue by : Shri V.K. Mangla, Sr. DR Date of hearing : 10.05.2023 Date of pronouncement : 26.05.2023 O R D E R This appeal is filed by the Assessee against order dated 15.12.2022 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2012-13. 2. The Assessee has raised the following grounds of appeal :- “1. In his order dated 26.12.2019, the Ld. AO has erred in law by making an addition of Rs.9,08,252/- under Section 69A of the Income Tax Act 1961 by considering entire sales consideration on long term sale of shares of TWENTY FIRST CENTURY (INDIA) LIMITED, and at the same time denying exemption u/s.10(38). Before making the addition, real facts of the case and nature of transactions have not been properly examined by the Ld. AO 2. In his order dated 26.12.2019, the Ld. AO has erred in law by making an addition of Rs.4,71,532/- under Section 69A of the Income Tax Act 1961 by considering entire sales consideration on long term sale of shares of RIDS SECURITIES LIMITED, and at the same time denying exemption u/s.10(38). Before making the addition, real facts of the case and nature of transactions have not been properly examined by the Ld. AO 3. During the year under consideration, the assessee had initially purchased 100 shares of M/s. Dignity Suppliers Limited (which was later merged into Twenty First Century (India) Limited) at the cost of Rs.40,050/- on 26.10.2009 and sold these shares on 25.04.2011, 13.05.2011 and 01.06.2011 and claimed Long Term Capital ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 2 of 7 Gain (LTCG) as per computation of income. The assessee also purchased shares of Rids Securities Limited on 15.03.2010 and 26.03.2010 for total share of 3000 at the cost of Rs.84,449/-. These share were sold on 23.11.2011 and 24.11.2011 for total sale consideration of Rs.4,71,532/-. Return of income was filed on 29.08,2012 declaring total income of Rs.1,60,340/-. An information was received from Investigation Wing wherein it was intimated that the assessee made 2800 shares transaction valued of Rs.9,08,700/- of penny scrip namely Twenty First Century (India) Limited during the Financial Year 2011-12 relevant to Assessment Year 2012-13. The assessee claimed profit of Rs.8,78,742/- earned from above sale exempt under Section 10(38) of the Income Tax Act, 1961. The assessee claimed this income as LTCG. After taking prior approval, notice under Section 148 dated 23.03.2019 was issued to the assessee and was duly served. In response to notice under Section 148 of the Act, the assessee filed return on 18.04.2019 declaring total income at Rs.1,60,340/-. Accordingly notice under Section 143(2) and 142(1) of the Act was issued on 06.11.2019. The assessee filed reply alongwith the evidence about the purchase of share in Twenty First Century (India) Limited as well as Rids Securities Limited from time to time. The Assessing Officer, after taking cognisance of the evidence and the submissions of the assessee, made addition of Rs.13,79,784/- as income from unexplained source under Section 69A of the Act read with section 115BBE of the Act. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that in respect of purchase of 21 st Century India Limited share of 2800, the same was purchased through broker VK Singhania and Co. on 23.10.2009 and sold in April to June 2011 on various dates via broker K Prasad & Co. The Ld. AR submitted that 100 of shares of Dignity Suppliers Limited were later converted into 3800 shares of 21 st Century India by way of scheme of amalgamation, out of which 2800 shares were sold in April to June 2011. The Ld. AR submitted that contract notes of both brokers for purchase and sale and bank statement to show fund received on sale via banking channel was submitted before the Assessing Officer. The source of funds of purchase was profit of Rs.40,100/- on trade of Reliance Capital Limited for which the assessee has attached contract note dated 16.07.2009 and submitted the same to the Assessing Officer. Similarly for Rids Security, 3000 shares ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 3 of 7 were purchased on 18.03.2010 via broker Monarch Research and sold in November 2011 via same broker Monarch Research. The assessee filed contract notes for purchase and sale from broker Monarch Research Pvt. Limited. For Rids Security, the fund invested of Rs.86,438/- was out of balance in brokers ledger (Monarch) of Rs.1,02,126/- on 18.03.2010 and the fund received on sale was not withdrawn and was kept with broker for use against future trade. The Ld. AR submitted that copy of broker statement showing the above 2 transactions and balance were also submitted before the Assessing Officer. The Ld. AR submitted that all these documents related to purchase of shares clearly shows that both the purchase side and sale side transactions were done via proper brokers and banking channels, so question of conversion of cash does not arise. The Ld. AR submitted that both shares are held in Demat for over one year so as to justify the exemption under Section 10(38) of the Act. The Ld. AR pointed out Demat statement of Bank of Baroda as on 31.03.2010 & 31.03.2011 showing holding of Rids Security (new name is Tricom Fruits). As well as Demat statement of 31.03.2011 of Nuvama Wealth showing holding of 3800 shares of 21 st Century. The Ld. AR submitted that the assessee has provided ITR and statement of income for A.Y. 2012-13 to 2015-16 alongwith his share Demat statement to prove that he has traded in various other shares in addition to 21 st Century and Rids Security. Ld. AR further submitted that Section 69A is not at all applicable in assessee’s case as all transactions are fully disclosed and through proper banking channel. In fact, the assessee has already sold both the shares as per the relevant records of the case and Section 69A gets invoked only when the assessee is found to be the owner of some assets, the source of purchase of which cannot be explained or such assets are not recorded in books. The Ld. AR further submitted that firstly as the assets are sold, the assessee is not in possession. Secondly, the source of purchase are through proper banking channel and ploughing back of profit as available in the brokers ledger. Further, both the share purchase and sale transactions are properly recorded in the books of accounts of the assessee, which the Assessing Officer himself had verified. The Ld. AR further submitted that the Investigation Wing report referred to by the Assessing Officer in his order is not covered or referred to by him in any of his SCN and no opportunity was given to the assessee for rebuttal of the same. The Ld. AR further submitted that there are only assumptions made by the Assessing Officer and no concrete evidences collected. Ld. AR further submitted that statement of broker Anil Khemka of Kolkata was given and there was no reference or name of the assessee as a beneficiary. Ld. AR further ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 4 of 7 submitted that the assessee has already submitted the evidences like contract notes, Demat statements, broker statements, bank statements to prove that his trades are genuine which the Assessing officer has not appreciated. There is no other adverse material shared by the Assessing Officer against the assessee to prove that his trade was bogus in the whole Assessment Order. Ld. AR further submitted that no independent enquiry was made by the Assessing Officer with either the stock brokers, or the company, or NSDL or CDSL or BSE or NSE or any other independent agency. The Ld. AR submitted that the Assessing Officer simply relied on the investigation report which even does not have name of the assessee. Thus, no fact finding is done by the Assessing Officer and only general assumptions were made. Ld. AR also gave example relating to share of Adani group which rose from Rs.500/- to Rs.3,500/- per share in a short span. Therefore, the Ld. AR submitted that the Assessing Officer is not right person to question the decision of the assessee regarding which share he should buy and which not. It is he capital of the assessee and he is the absolute person to take decision based on his risk taking appetite. Ld. AR submitted that reliance was placed on the judgements of Durga Prasad More and Sumati Dayal (82 ITR 540 & 214 ITR 801), both these are vague and not relevant in assessee’s case. Ld. AR further submitted that the shares were sold through registered brokers on proper platform with Securities Transaction Tax which was paid by the assessee. The Assessing Officer has observed that there were no real buyers, but again without any evidence and identification of the real buyer the Assessing Officer cannot assume that there is no buyer at all. The assessee has sold the shares in open market and, therefore, the plea of the Assessing Officer and the observations made by him are incorrect. The Ld. AR further submitted that reliance of the CIT(A) on the decision of Hon’ble Kolkata High Court in the case of Swati Bajaj vs. CIT (2022) 139 Taxmann.com 352 is also not relevant to assessee’s case. 6. The Ld. DR submitted that the investigation report has clearly mentioned that there was off-market acquisition of shares of an unknown company with negligible business and poor fundamentals which was clearly presented in relation to transaction in shares of 21 st Century (India) Limited as well as Rids Securities Limited. The Ld. DR further submitted that the financial result of the penny stock used for the purpose clearly indicates that its quoted price at the peak was the result of rigging and a large number of individuals availed of the benefits of the scheme and took entries of LTCG amounting to several crores. Ld. DR further submitted that even assuming the ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 5 of 7 purchase as genuine, the sales given the high rates for such penny stocks with no real buyers are bogus. The evidentiary value of payment of Securities Transaction Tax cannot make a non-genuine transaction, a genuine one. The Ld. DR further submitted that the decision of Hon’ble Kolkata High Court in the case of Swati Bajaj vs. CIT is relevant in the present case. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). Ld. DR also relied upon the decision of Hon’ble Delhi High Court in the case of Udit Kalra vs. ITO (in Manu/De/1507/2019) wherein investment in 4000 shares in a penny stock company where share prices increased astronomically within a period of approximately 19 months when the price of acquisition was Rs.12/- per share on the date of sale it was Rs.720/-. 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has given details such as contract notes for purchase and sale of 21 st Century India Limited as well as Rids Securities Limited shares from respective brokers. The assessee purchased the shares for A.Y. prior to the sale of the shares. The Investigation Wing report/information which has been mentioned by the Assessing Officer was related to organised racket of bogus entries of LTCG which is exempt from tax. The said report was published in the year 2015, but while passing the present assessee’s Assessment Order and taking cognisance of the said investigation report, the Assessing Officer has not pointed out as to how the assessee was involved in the bogus purchase of shares. The assessee was not given any opportunity as to whether the 21 st Century India Limited was operational in A.Y. 2012-13 or not. While stating that the share price movement of 21 st Century Limited was exorbitant and was suspended for a particular period, the said particular period was not mentioned by the Assessing Officer. The statement of Anil Kumar Khemka was also not provided to the assessee, therefore, only mentioning of investigation report was made without giving any details of the said report to the assessee at the time of assessment proceedings. The Assessing Officer in paragraph no.13 has observed that the financials of the penny stock 21 st Century India Limited and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. The Assessing Officer has never commented that the 21 st Century India Limited shares has been blacklisted for a particular period for A.Y. 2012-13 or in the prior years. When the assessee purchased these shares the assessee provided the contract note, bank statement for which the source of the funds for purchase as well as showing that the price received after the sale of the share and utilisation of the ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 6 of 7 same. The assessee has also given the details of his ITR statement and has also given his share trading details in other scrip from time to time to the Assessing Officer and amore particularly for the said assessment period as well. The decision of Hon’ble Kolkata High Court in the case of Swati Bajaj is related to the assessees to explain the genuineness of the claim of LTCTG made by them and in the present case the assessee has established his genuineness of the claim of the LTCG through its action and the reports recorded that the scrip he sold or purchased at the relevant time was through the procedure prescribed by the SEBI guidelines as well as regulations guidelines prevalent at the same time. The assessee has followed the compliance of the regulatory authority given from time to time. Thus, to doubt that the assessee has purchased bogus shares/penny stock whether the same was penny stock or not was not known to the assessee at the relevant time but simply as per the stock market guidelines the assessee has purchased and sold the said shares through proper channel i.e. through brokers. The Assessing Officer has not confronted the statement of Anil Kumar Khemka as to how the assessee was involved in the process of manipulating of bogus LTCG. The general observation of the Assessing Officer is only assumption and there is no pointed finding given by the Assessing Officer related to these shares that the assessee was involved in unexplained source for acquiring the alleged scrip of Rs.13,79,784/- the assessee has explained its source while purchase and also after selling the said scrip. The Assessing Officer as well as the CIT(A) has ignored these facts and, therefore, appeal of the assessee is allowed. 8. In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on this 26 th day of May, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 26 th day of May, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File ITA No.100/Ahd/2023 Assessment Year: 2012-13 Page 7 of 7 By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad