Shri Arpit Mahendrabhai Shah, Surat V. Dy. Commissioner of Income Tax, Central Circle-1(3), Surat

ITA 112/SRT/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8010 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-03-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 12-02-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: I PCIT VS MS GOKULDHAN ENTERPRISE LLP; TAXMANN.COM
• Keywords: Unexplained expenditure; Income from undisclosed sources; Earning of tax free income; Question of law; Accommodation entries; Penny stocks; Bogus
• Section: 131; 68; 69; 63; 271(1)(c); 69C; 143(3); 142(1); 143(2); 48; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.112/SRT/2023 Assessment Year: (2015-16) (Physical Hearing) Arpit Mahendrabhai Shah, B/701, Veer Bhadra Residency, Opp: SVR College, Umra, Surat – 395007. Vs. The DCIT, Central Circle – 1(3), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No: BCOPS8401G (Appellant) (Respondent) Appellant by Shri Shaunak Zaveri, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 14/03/2024 Date of Pronouncement 03/04/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2015-16, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], Surat, National Faceless Appeal Centre (in short ‘the NFAC’), dated 10.01.2023, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 10.11.2017. 2. The grounds of appeal raised by the assessee are as follows: “1.0 That on the facts and in the circumstances of the- case, the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi [here-in-after referred to as Ld. CIT(Appeals)] was not justified and grossly erred by without considering the facts, evidences and documents submitted by the appellant. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. order 2 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah passed u/s. 143(3) of the I.T. Act, 1961, which is incomplete and also bad on facts. 2.0(a) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in by accepting the addition of long term capital gain Rs. 75,13,404/- as account of income from undisclosed sources u/s. 68 of the Act 2.0(b) Without prejudice to above grounds, that on on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. by erred in treating long term capital gain as accommodation entries and bogus entries. 2.0(c) Without prejudice to above grounds, that on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. by not proving right for cross-examining the director and or promoters and or broker of the company in which investment was made. 2.0(d) Without prejudice to above grounds, that on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the action of the AO where sole reliance was placed on report of Kolkata Investigation Directorate, taxmann, court rulings, internet as well as investigation wing report and findings of the SEBI. 3.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O, in by accepting the addition of Rs.3,75,670/- on account of ad hoc disallowance of commission, as unexplained expenditure u/s. 69C. 4.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred confirming the initiating of penalty proceeding u/s. 271(1)(c) of the Act. 5.0 That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated here-in-above/ either before or at the time of hearing of this appeal.” 3. Briefly stated, the relevant material facts are as follows: The assessee before us is an individual and filed its return of income for the year under consideration on 30.03.2016 declaring Nil income. The case of the assessee was selected under complete scrutiny to examine suspicious sale transaction in shares (penny scrip). Notice u/s 143(2) of the Income- tax Act dated 20.09.2016 was issued and duly served upon the assessee. Thereafter, a notice u/s 142(1) dated 16.08.2016 calling for 3 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah relevant details was issued and duly served upon the assessee. A fresh notice u/s 142(1) r.w.s 129 of the Income-tax Act, dated 03.07.2017 was issued and duly served upon the assessee due to change of incumbent. In response to the above notices the AR of the assessee attended from time to time and filed written, submissions, which are verified and placed on record. The assessee derived income from house property during the year under consideration. The Assessee had claimed exemption of LTCG on sale of the scrip M/s Mishka Finance Ltd. However, on perusal of the assessment; record of earlier years of the assessee it was found that such a "huge amount of exempted capital gain has never been earned in earlier years. Further, the main reason for selection of scrutiny of this case is to examine the earning of suspicious capital gain from transaction in penny stock. 4. During the course of scrutiny assessment, it was noticed by the assessing officer that assessee had shown income from Long Term Capital Gains from sale of shares of M/s Mishka Finance Ltd, amounting to Rs.75,13,404/-. This Long Term Capital gain was claimed exempt from Income tax as per section 10(38) of the Act. The assessee had declared following calculation regarding income from long term capital gain on sale of shares of Mishka Finance Ltd. Name of Company Mishka Finance Ltd. Sale Price 75,40,904 Purchase price 27500 Exempt u/s 10(38) 75,13,404 On-going through the documents filed by the assessee it was noted by the assessing officer that the assessee purchased the shares of Mishka Finance & Trading Ltd on 26.04.2012. The purchase details are as follows: Name of seller Name of script No. of shares Date of purchase Amount How acquired 4 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah Roongta Rising Stock P. Ltd. M/s Mishka Finance & Trading Ltd. 2500 26.04.2012 27500/- @ Rs.11 Online purchase The assessee furnished an invoice of Roongta Raising Stock Pvt. Ltd, dated 26.04.2012 with regard to purchase of shares of Mishka Finance & Trading Ltd. The assessee in turn sold the shares through the broker Roongia Raising Stock Pvt. Ltd., Surat between July to December, 2014. Thus, it was noted that the assessee made a gain of almost 24 months. Some points that were to be prima facie noted based on information and submissions made by the assessee by the asssessing officer are as follows: a. The scrip was named in Kolkata Investigation Report titled “Project Bogus LTCG/STCL through BSE Listed Penny Stocks” prepared by DDIT (Inv.), Unit 2(3). b. There are statements by the promoters, brokers and associated persons, who have on record confirmed the involvement of M/s Mishka finance Trading Ltd. in the stock price manipulation. c. The Assesses derived income, from other sources. d. Assessee is not an avid trader in shares rather had invested in only handful of shares in his life. e. The assessee had invested in shares of the company, M/s Mishka Finance & Trading Ltd., which had no worthwhile credentials on record. f. The shares have been de materialised in Sept, 2012 whereas it was purchased in April, 2012. g. The sale of shares happen through a broker (which has been categorically involved in LTCG scam as named in Kolkata Investigation Report) through online mode and STT is paid and assessee, derives exempt income u/s 10(38) of the Income-tax Act. 5. Thereafter, the Assessing Officer did the step by step conclusion from the various investigations carried by Kolkata Investigation Directorate wing for 84 penny stock companies which are mentioned in the Assessment order vide page nos. 4 to 12. Thereafter, Assessing Officer has discussed the modus operandi of penny stocks of the companies and explained the transactions. 5 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah 6. In response to the notice of the Assessing Officer, the assessee submitted its reply. However, the Assessing Officer rejected the contention of the assessee and observed that this penny stock is controlled by a group of people viz- promoter/operator/brokers. At purchases of shares were arranged by them on assurance of books of bogus LTCG in favour of the assessee. It is fact and evidence from the statement of several persons recorded, u/s 131 by the Investigation Wing Kolkata that they have not only arranged the sale of shares to the assessee but also arranged for sales of shares through their entities and paying certain amount of commission to them. The entity from whom share was purchased is an entry operator and controlled by a group of entry operators. Therefore, generation of LTCG through the process from purchase to receipt of Cheque is totally arranged and actually no capital gain arose, but assessee's own cash has been routed through different entities and ultimately reached to his/her hand by Cheque in the disguise of sale proceeds of listed security.Thus, the claim of Long Term Capital Gain u/s 10(38) is denied and assessed income from undisclosed sources u/s 68 of the Income Tax Act, accordingly, the amount of Rs.75,13,404/- claimed as exempt income by the assessee against the sale of scrips of above mentioned scrip M/s Mishika Finance Ltd during the financial year 2014-15 (AY 2015-16) was treated as his undisclosed income u/s 69 of the Income Tax Act (taxable at the rate of 30% as provided u/s 115BBE). 7. Also giving commission for getting bogus Long Term Capital Gain has clearly been established by the Investigation Directorate, Kolkata. Hence, Rs.3,75,670/- being 5% of Rs.75,13,404/- claimed as Long Term Capital Gain, was disallowed under section 69 of the Income Tax Act, 1961 as unexplained expenditure. 6 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah 8. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer. The ld CIT(A) noted that the issue of penny stock is spread across the country and modus is well established now. It is evident that the appellant's case fits into the criteria of penny stock as brought by the AO in the assessment order. In the light of the above discussion, the appellant's argument that the transaction of shares in M/s Mishka Finance & trading Ltd, is genuine transaction and not a penny stock transaction cannot be accepted and hence ld CIT(A) confirmed the addition made by the assessing officer. About unexplained expenditure u/s 69C of the Income Tax Act, 1961 of Rs.3,75,670/- being 5% of sale value of Rs.75,13,404/-, was also confirmed by ld CIT(A). 9. Aggrieved by the order of ld. CIT(A), the assessee is in appeal before us. 10. Learned Counsel for the assessee, argued that scrip (share) under consideration is not a penny stock scrip and it is covered in favour of assessee by the judgment of the Hon'ble Jurisdictional High Courts and other High Courts, therefore addition should not be made. The Ld. Counsel for the assessee relied on the following judgements: (i) PCIT vs M/s Gokuldhan Enterprise LLP, 156 taxmann.com 152 (Gujarat) (ii) ITO vs Gokuldhan Enterprise LLP, ITA No.675/Ahd/2018 (iii) DCIT vs Prakash Chand Sharma & Kalawati Sharma, ITA No.780 & 781/JP/2019 (iv) ITO vs Gopalbhai T Patel (HUF), 156 taxmann.com 26 (Surat – Trib.) 7 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah (v) Sandipkumar Parsottambhai Patel vs ITO, 137 taxmann.com 373 (Surat – Trib.) (vi) Vijay Infrastructure Ltd. vs ACIT, ITA No.254/LKW/2015 (Lucknow Trib.) 11. The Ld. Counsel also submitted that the company, namely, M/s Miskha Finance & Trading Ltd, is an active company as per ROC records, and therefore addition made by the Assessing Officer may be deleted. 12. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the Revenue submitted that the scrip of M/s Mishkha Financial & Trading Ltd, is covered in the penny stock by the investigation done by the Kolkata Investigation Wing and it was held that it is a penny stock scrip. There is no performance of the assessee- company, and such penny stock company is not earning any profit. Therefore, addition made by the Assessing Officer should be upheld. To prove his stand, the ld. Sr. DR for the Revenue relied on the following judgments: (i) PCIT vs Swati Bajaj, 139 taxmann.com 352 (Calcutta) (ii) CIT vs Navodaya Castles (P.) Ltd., 50 taxmann.com 110 (Delhi) (iii) Navodaya Castles (P.) Ltd. vs. CIT, 56 taxmann.com 18 (SC) (iv) ITO vs Shamim M. Bharwani, 69 taxmann.com 65 (Mumbai – Trib.) (v) Udit Kalra vs ITO, ITA No.6717/Del/2017 (vi) Hemil Subhashbhai Shah, ITAT Ahmedabad – ITA No.1121/Ahd/2018 & ITA No.961/Ahd/2019 8 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah (vii) Majoj Jain (HUF) vs ITO, ITAT Kolkata – ITA No.1782/Kol/2018 (viii) Suman Poddar vs ITO, 112 taxmann.com 330 (SC) (ix) PCIT vs NRA Iron & Steel (P.) Ltd., 103 taxmann.com 48 (SC) (x) NRA Iron & Steel (P.) Ltd. vs PCIT, 117 taxmann.com 752 (SC) (xi) Shyam Sunder Bajaj vs ITO, 145 taxmann.com 315 (Kolkata Trib.) (xii) Sangeeta Devi Jhunjhunwala vs ITO, ITAT Delhi – ITA No.474/Del/2022 (xiii) PCIT vs Nand Kishore Agarwala, 143 taxmann.com 402 (Calcutta) (xiv) Anirudh Vekata Ragi vs ITO, 156 taxmann.com 608 (Hyd. Trib.) (xv) Saroj Baid vs ITO, 155 taxmann.com 630 (Kolkata Trib.) (xvi) Dinesh Kumar R. Tulsyan (HUF) vs ITO, 149 taxmann.com 98 (Pune – Trib.) (xvii) Abhishek Gupta vs ITO, 147 taxmann.com 21 (Indore – Trib.) (xviii) Archana Rajendra Malu vs ITO, 155 taxmann.com 625 (Pune Trib.)] (xix) PCIT vs Usha Devi Modi, 151 taxmann.com 19 (Calcutta) 13. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that assessee submitted before us 9 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah the following documents and evidences, viz: (1) Copy of Income Tax Return & Computation of Income for AY.2015-16 (vide Pb.36 to 38), (2) copy of confirmation of accounts from stock broker (vide Pb.39), (3) Ledger copy of contract note (vide Pb.40 to 46), (4) copy of holding statement of shares as on 30.03.2015 from the books of stock broker (vide Pb.47), (5) Copy of Dena Bank statement (vide Pb.48 to 49), (6) Copy of show cause notice issued u/s 142(1) by AO dated 26.1.2017 (vide Pb.50 to 52). (6) Copy of ITR-V along with Income Tax Return in form No.ITR-2 for AY.2015-16 (vide Pb.60 to 67), (7) Balance sheet, profit & loss account & capital account for AY.2011-12, AY.2012-13, AY.2013-14, AY.2014-15 & AY.2015-16 (vide Pb.73 to 96), (8) Copy of Arpit M Shah ledger from Roongta Rising Stock Pvt. Ltd. for AY.2013-14 (vide Pb.97), (9) Copy of Bank book of Dena Bank from Arpit Mahendra Shah for AY.2015-16 (vide Pb.98 to 101) etc. We note that when assessee has submitted so much evidences and documents, no disallowance on estimation, surmise or conjecture basis can be made. The Hon'ble Bombay High Court has held in the case of ACIT Vs. Shailesh S. Shah 63 ITR 153 (Bom.) that no addition can be made purely based on suspicion. The assessee submitted contract note before the assessing officer, bank statement and STT was paid on the transaction. None of the evidences submitted by the assessee have been proved bogus or concocted. The Ld. assessing officer must have to specify and demonstrate with cogent evidence that transactions of purchase and sale of shares made by the assessee are bogus. In the assessee`s case nothing was brought by the assessing officer to prove that any of these evidences, as narrated above, filed by the assessee is false or untrue. 10 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah 14. We note that Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai, [2022] 142 taxmann.com 247, held that where Assessing Officer noted that assessee had indulged in scrip of shell company and had claimed long term capital gain on sale of shares and made addition under section 68 holding that entire transaction was bogus and in the nature of penny stock, however, since genuineness of investment in shares by assessee was substantiated by him by producing copy of transaction statement for period from 01.06.2001 to 01.10.2010 and shares were retained for more than ten years and were sold after such long time, hence investment was not bogus therefore it cannot be treated that investment was made in penny stock. The findings of the Hon`ble Court is reproduced below: “2. As submitted by learned senior advocate Mr. M.R. Bhatt for M.R.Bhatt and Co., the appellant revenue proposes the following substantial questions of law, which according to the submission requires examination. "Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex facie perverse because the Appellate tribunal deleted the addition of Rs. 2,10,474/- made on account of bogus long term capital gain, without appreciating the entire gamut of fact that the assessee transacted in penny stock namely M/s. Devika Proteins Ltd. thus earning bogus Long term Capital Gain and claiming it to be exempt under section 10(38) of the Income-tax Act?" 3. The assessee filed the return of income for the assessment year 2011-12 on 29-3-2012 declaring his total income Rs. 3,11,490/-. Subsequently the assessment was reopened as information was received that assessee has indulged into script of shell company and had claimed long term capital gain on sale of shares of Devika Proteins Limited to the tune of Rs. 2,10,474/- and that the amount was claimed as exemption under section 10(38) of the Income-tax Act, 1961 (hereafter referred to as 'the Act') 3.1 The Assessing Officer made addition of the said amount. The entire transaction was treated as bogus and in the nature of penny stock. By adding Rs. 2,10,474/- under section 68 of the Act, total income was assessed at Rs. 5,21,964/-. 3.2 In appeal by the assessee before the Commissioner of Income-tax (Appeals), the issue was re-examined. According to the appellate authority the appellant assessee had furnished evidence to show that the shares were brought as genuine investment which was long back in the year 2000-01. As 11 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah the shares were in the nature of old investment, they could not be treated as penny stock by any stretch of imagination. 4. The Income-tax Appellate Tribunal further examined the question in appeal preferred by the revenue and confirmed the view of the appellate authority noticing that the shares were purchased in the year 2001 and they were sold after long time in the year 2010-11. 5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1-6-2001 to 1-10-2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span. 6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. 6.1 On the facts of case, no question of law much less substantial question of law arises. 7. Resultantly, appeal is dismissed”. 15. The genuineness of investment in the shares by the assessee was substantiated by him by producing contract note, transaction was through recognised broker, transaction was done through banking channel on which STT was paid. The shares were held by assessee, as an Investor. Therefore, respectfully following the judgment of Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai (supra) and other High Courts, as relied on by ld Counsel, we delete the addition the addition. 16. The Assessing Officer also made addition on account of commission paid @ 5%. In the assessee`s case Assessing Officer added Rs.3,75,670/- (5% of Rs.75,13,404/-). Since, we have deleted the alleged 12 112/SRT/2023/AY.2015-16 Arpit Mahendrabhai Shah addition of Rs.75,13,404/-, hence addition made by Assessing Officer does not have leg to stand, therefore it is hereby deleted. 17. In the result, appeal filed by the assessee is allowed. Order is pronounced on 03/04/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 03/04/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat