Kunvarji Finance Pvt. Ltd., Ahmedabad V. The ACIT, Circle-2(1)(2), Ahmedabad

ITA 1083/AHD/2019

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Kunvarji Finance Private Limited appealed against the order of the Commissioner of Income Tax (Appeals)-02, Ahmedabad, which upheld the reassessment order passed under sections 143(3) read with section 147 of the Income Tax Act. The reassessment involved the addition of Rs. 12,59,326 as speculative loss incurred in shares of M/s Vas Infrastructure Private Limited, deemed as penny stocks operated by entry operators to launder unaccounted money. The assessee argued that the transactions were genuine, supported by documentary evidence, and conducted through banking channels. The Tribunal, referencing a similar case, found that the shares were not blacklisted and the transactions were legitimate, leading to the allowance of the assessee's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131456 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 25-06-2019
• Other Referred Cases: Genuine Finance Private Limited v DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives; Speculation loss; Tax effect

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Kun varji Finan ce Private Limited, 11 1, Shya mak Co mplex , B/h Kamdhenu Co mplex , Ambaw adi, Ah medabad PAN: AAACK8 759R (Appellant) Vs The ACIT, Circle-2(1)(2 ), Ah med abad (Resp ondent) Asses see b y : Shri Biren Shah, A. R. Revenue by : Shri Sa njay Kumar, Sr. D. R. Date of hearing : 09-02 -2023 Date of pronouncement : 22-03 -2023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-02, Ahmedabad, in proceeding u/s. 250 vide order dated 26/04/2019 passed for the assessment year 2011-12. ITA No. 1083/Ahd/2019 Assessment Year 2011-12 I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 2 2. The assessee has taken the following grounds of appeal:- “1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred upholding the reassessment order passed u/s. 143(3) r.w.s 147 of the I.T. Act. 2. In law and in the facts and circumstances of case of the appellant, the Ld. CIT(A) has erred in upholding addition of Rs. 12,59,326/- being speculative loss incurred in script "Vas Infrastructure" considering the same as penny stock operated by entry operators to launder the unaccounted money without appreciating the fact that the Appellant has provided the bills issued by Vas Infrastructure to prove the genuineness of the transaction and the sale consideration of such stock has been done through banking channel. 3. The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. Total tax effect Rs. 3,89,132/-“ 3. The brief facts of the case are that assessee had purchased 79,500 shares of M/s Vas Infrastructure Private Limited amounting to ₹ 61,28,656/- and sold the said shares for ₹ 48,69,330/- and incurred loss of ₹ 12,59,326/- on such sale of shares. During the course of assessment, the AO made addition on account of sale of above 79,500 shares for ₹ 61.28 lakhs on the basis of investigation carried out by the DDIT (Inv), Mumbai in respect of penny stock companies including M/s Vas Infrastructure Private Limited. 4. The assessee filed appeal before Ld. CIT(Appeals) in respect of the aforesaid addition. Before Ld. CIT(Appeals), the assessee contended that the investment made in the shares of M/s Vas Infrastructure Private Limited is fully supported by documents furnished by the assessee during the course of assessment proceedings. Further, the assessee submitted that the sales I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 3 consideration is reflected in the bank statement, the bills have been issued by M/s Vas Infrastructure Private Limited for sale of shares has also been placed on record and therefore, in the instant facts, the genuineness of share transactions is fully established. The assessee further submitted before Ld. CIT(Appeals) that the inference drawn by the AO that the transaction is bogus and culpable device to introduce unaccounted money into the books of the assessee is based on doubt and suspicion only and therefore, the addition made should be deleted. However, Ld. CIT(Appeals) dismissed the appeal of the assessee on this issue with the following observations: “3.5. The has made the addition of sale of 79500 shares for Rs. 61,28,656/- on the basis of detailed investigation carried out by DDIT (inv.), Unit - 6(2), Mumbai in respect of penny stock company including M/'s. Vas infrastructure Pvt. Ltd. in which the modus operandi adopted by the entry provider to book bogus profit and loss has been established. The appellant has purchased 79500 shares amounting to Rs.61.28,656/- and said the said shares for Rs.48,69,330/- incurring loss of Rs. 12,59,326/-. The Honourable Bombay High Court in the case of Sanjay Bimaichand jain.(L7H) Shanticievi Bimaichand Jain Vs. The Principal Commissioner of income Tax. - 1, Nagpur in income Tax Appeal No. 18/2017 in his order dated April 10, 2017 has confirmed the addition of long term capital gain on penny stock company as under.- "The assessee had on the advice of an income tax consultant purchased shares of two penny stock Kolkata based companies i.e., 8000 shares at the rate of Rs.5.50 per share on 08.08.2003 and 4000 shares at the rate of Rs.4/per share on 05.08.2003 from Syncom Marketing Pvt. Ltd. and of Skyzoom Distributors Pvt. Ltd, the payments were made by the assessee in cash for acquisition of shares of both the companies. The address of both the coiiipani.es was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 4 clone b\ the assessee through Global Stock and Securities Ltd and the address of the said broker was incidently the address of the two companies. Both the companies intimated the assessee on 07.04,2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited. Kolkata and. the assessee received the shares of the new company in the ratio of i:4 of the number of shares of the previous two companies held b\ the assessee. The assessee sold 2200 shares at an exorbitant rate of Rs.486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs.485.65. The shares are sold through another broker, viz. Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of India. The assessing officer did not accept the case of the assessee that she was entitled to exemption under Section 10(38) of the Income Tax Act, The assessing officer held that the aforesaid transactions of purchase of two penny stock shares for Rs.60,000/-, the merger of the companies with a new company and the sale of the shares for Rs. 11,58,930/fell within the ambit of adventure in the nature of trade and the assessee had profiled by Rs. 13,98,930/- . The assessing officer, therefore, brought the aforesaid amount to tax under the head 'business income'. Being aggrieved by the order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appeal tiled by the assessee was dismissed and so was the subsequent appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) before the income Tax Appellate Tribunal. On hearing the Seamed counsel for the assessee and on a perusal of the orders of the income tax authorities, it appears that there is no scope for interference with the said orders in this appeal. By referring to the aforesaid facts, which are narrated in the earlier pan of this order, the authorities found that the assessee had made investment in two unknown companies of which the details were not known to her. li was held that the transaction of sale and purchase of shares of two penny stock companies, the merger of the two companies with another company, viz. Khoobsurat Limited did not quality an investment and rather it was an adventure in the nature of I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 5 trade. It was held by all the authorities that the motive of the investment made by the assesses was not to derive income but to earn profit. Both the brokers, i.e. the broker through whom the assessee purchased the shares and the broker through whom the shares were sold, were located at Kolkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of Rs.65,000/ in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs.5.50 Ps. Per share and Rs. 4/per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at Rs.486.55 Ps and Rs.485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assesses. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered couent evidence to explain as to how the shares in an unknown company worth Rs. 5 had jumped to Rs.485/ in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs.5/of a little known company would jump from Rs.5/to Rs.485 . The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Courl in several decisions. The findings do not give rise to any substantial question of law. The judgments reported in (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal). (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (SC) (Raja Bahadur Verus CIT) and (2015) 235 Taxman 1 (Bom) (CIT Verus Smt. Datta M. Shah) and relied on by the learned counsel I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 6 for the assessee arc distinguishable on facts and cannot be applied to the case in hand.” 3.6. In view of the above, the AO was justified to make the addition. The ground of appeal is accordingly dismissed.” 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the additions made by the AO during the course of assessment proceedings. The counsel of the assessee submitted that the assessment order passed by the AO is purely on the basis of suspicion and in the instant facts, all the transactions have been carried out by the assessee are duly supported by documents and have been carried out through the banking channels. The counsel for the assessee further relied upon the case of Genuine Finance Private Limited v DCIT in ITA number 221/Ahd/2021 by the ITAT Ahmedabad with respect to the shares of the same company i.e. M/s. Vas Infrastructure Pvt. Ltd. which were sold by the assessee during the year under consideration. The counsel for the assessee submitted that in the aforesaid decision, it was held by ITAT that during the period under consideration, the shares of the aforesaid company had not been blacklisted by the appropriate authorities and accordingly, it was held that the transactions in said shares by the assessee could not be held to be bogus. The Ld. Counsel for the assessee submitted that the facts of the assessee and that of the aforesaid Ruling are identical and hence the case of the assessee is covered by the observations made in the aforesaid Ruling by jurisdiction Ahmedabad ITAT. In addition to the above, the counsel for the assessee also submitted a detailed Chart of assessee’s transactions in purchase and sale of shares during the period under consideration and submitted that apart from the purchase/sale of shares of I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 7 M/s Vas Infrastructure Private Limited, the assessee was engaged in trading in shares of several other companies as well. Therefore, it is not the case that the assessee was engaged in the purchase and sale of shares of M/s Vas Infrastructure Private Limited alone and the assessee had purchased and sold shares of various other companies as well during the year under consideration. Further, the assessee submitted that from perusal of the assessee’s transactions in the script of M/s Vas Infrastructure Private Limited, it is evident that out of total 17 transactions in the script of M/s Vas Infrastructure Private Limited, on 8 occasions the assessee had earned speculation gain. Therefore, it was incorrect in the instant set of facts to conclude that the assessee had engaged in the purchase and sale of shares of M/s Vas Infrastructure Private Limited only to book a bogus loss. In response, DR relied upon the observations made by the AO and the Ld. CIT(Appeals) in their respective orders. 6. We have heard the rival contentions and perused the material on record. We are of the considered view that in the instant set of facts it cannot be held that the sale of shares of M/s Vas Infrastructure Private Limited was with a view to book a bogus loss. We further observe that the ITAT Ahmedabad in the case of Genuine Finance Private Limited v. DCIT in ITA number 221/Ahd/2021 has held on identical facts and in the case of purchase and sale of same script i.e. M/s Vas Infrastructure Private Limited that the transaction cannot be held to be bogus. The relevant extracts of the ruling by ITAT Ahmedabad is reproduced below for reference: I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 8 “7. Heard both the parties and perused all the relevant material available on record. As regards the reopening issue, the same though argued by the Ld. AR, the same is not specified in the grounds of appeal. Yet it is pertinent to note that the reopening is on the very same issue that of the transactions related to M/s VAS Infrastructure Ltd. There is no necessity to adjudicate this issue as the issue in hand will be decided on merit. It is pertinent to note that the assessee is continuously dealing in share trading of various shares/scripts and the said fact is not disputed. The Script of M/s VAS Infrastructure Ltd. was not black listed by the SEBI at the relevant period. In fact, the SEBI order is related to penalty imposed on the promotors for delay in publishing the financial results for the quarter ended December 2009. But nowhere in the said order of SEBI dated 09.01.2018 it is said that for the particular period mentioned herein the script of M/s VAS Infrastructure is black listed or is penny stock or sham and bogus script/shares. The assessee purchased shares online through various brokers and the payments made to brokers are reflected in the bank account. These details were also before the Assessing Officer. The assessee has DP accounts with all the brokers and the proof of payment of Securities Transaction Tax duly paid as per the contract note was also submitted before the Assessing Officer. The assessee has transferred the shares through online platform of stock exchange that to through broker. The investigation wing report nowhere stated that the script of M/s VAS Infrastructure Ltd. is blacklisted. In fact, the report of investigation wing is much later than the dates of purchase /sale of shares and the order of the SEBI is also much later than the date of transactions and the order of the SEBI nowhere stated that the transaction at earlier dates as void. The Assessing Officer has not given any description as to why the script at particular juncture was at lowest or highest price at the time of trading due to assessee company’s interference, when the entire transaction of purchase and sale of the scripts was through National Stock Exchange or Bombay Stock Exchange and that also through the authorised brokers. In fact, the Revenue has also not pointed out as to whether any of the broker during the said period was black listed or prevented to trade in the stock market by SEBI or other investigation agencies. Merely on conjecture and surmises, the Assessing Officer cannot made disallowance. In fact, the assessee has not claim the benefit of Section 10(38) in the present assessment year or earlier assessment year or in subsequent assessment years. The CIT(A) has totally ignored the evidences such as Audited accounts and Tax Audit report for F.Y. 2011-12, copy of demat statements for F.Y. 2011-12, F&O Segment yearly summary sheet, Audited Accounts for F.Y. 2011-12, Statement of Script wise purchase and sales for F.Y. 2011-12, stock summary of M/s VAS Infrastructure Ltd., copy of assessee’s ledger in broker’s books and copy of broker’s ledger in books of assessee for F.Y. 2011-12 along with bank statements and bank book for F.Y. 2011-12 which were submitted by the assessee before the Assessing Officer as well as before the CIT(A). Thus, the Assessing Officer as well as the CIT(A) was not right in disallowing the claim of business loss to the assessee. The appeal of the assessee is allowed.” I.T.A No. 1083/Ahd/2019 A.Y. 2011-12 Page No. Kunvarji Finance Pvt. Ltd. vs. ACIT 9 6.1 Respectfully following the aforesaid ruling as reproduced above and taking into consideration the facts of the instant case, we are of the considered view, that Ld. CIT(Appeals) has erred in facts and in holding that the transaction or purchase and sale of shares was the only with a view to book bogus loss. In light of the above observations, the appeal of the assessee is allowed. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 22-03-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 22/03/2023 TRUE COPY आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद