Saraladevi Betala, CHENNAI V. ITO Non Corporate Ward 6(3), CHENNAI

ITA 1264/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4786 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 16-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B. SAGADEVAN
• Keywords: Share purchase agreement; Principle of natural justice; Set aside; Capital Gains; Bogus

Judgement Text

, (SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL, D (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER] ./I.T.A. NO.1264/CHNY/2018 / ASSESSMENT YEAR : 2015-2016 SMT. SARALA DEVI BETALA, NO.13, PERUMMAL KOIL GARDEN ST., SOWCARPET, CHENNAI-600 079. [PAN: AASPS 4297 D] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD-6(3) CHENNAI. ( ' / APPELLANT) ( #$' /RESPONDENT) / APPELLANT BY : MR. N.VIJAY KUMAR, CA /RESPONDENT BY : SHRI. B. SAGADEVAN, JCIT. /DATE OF HEARING : 11.10.2018 /DATE OF PRONOUNCEMENT : 15.10.2018 / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS DI RECTED AGAINST AN ORDER DATED 13.02.2018 OF COMMISSION ER OF INCOME-TAX (APPEALS)-5, CHENNAI, IT HAS TAKEN ALTOGETHER TWELV E GROUNDS OF WHICH GROUNDS 1 & 12 ARE GENERAL, NEEDING NO SPECIFIC AD JUDICATION. ITA NO.1264/CHNY/2018 :- 2 -: 2. GRIEVANCE RAISED BY THE ASSESSEE THROUGH ITS GROUND S 2 TO 11 IS ON A DISALLOWANCE OF ITS CLAIM OF EXEMPTION U/ S.10(38) OF THE INCOME TAX ACT (IN SHORT THE ACT) ON LONG TERM C APITAL GAINS ARISING OUT OF SALE OF 5500 EQUITY SHARES OF ONE M/S.LIFEL INE DRUGS & PHARMA LTD., AND TREATING THE CONSIDERATION OF RS.13,56,42 0/- RECEIVED ON SUCH SALE UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE HAD ACQUIRED 200 EQUITY SHARES OF FACE VALUE OF RS.10/- EACH OF ONE M/S.LIFELINE DRUGS & PHARMA LTD., THROUGH OFF MARK ET PURCHASE ON 18.07.2012. AS PER THE LD.AUTHORISED REPRESENTATIV E, ASSESSEE ON ACCOUNT OF A BONUS SHARES ISSUED IN THE RATE 4:1, R ECEIVED ANOTHER 800 SHARES. THEREAFTER, AS PER THE LD.AR, THE FACE VAL UE OF THE SHARE WERE SPLIT IN TO RS.1/- PER SHARE, THEREBY INCREASING TH E HOLDING OF THE ASSESSEE TO 10,000 SHARES. AS PER THE LD.AR, 5500 SHARES OUT OF THEM WERE SOLD. AFTER DEMATTING, THROUGH A RECOGNIZED ST OCK EXCHANGE. HOWEVER, AS PER THE LD. AUTHORISED REPRESENTATIVE, LOWER AUTHORITIES DISBELIEVED SALE OF THESE SHARES RELYING ON A REPOR T OF DIRECTORATE OF INCOME TAX (INVESTIGATION) KOLKATA AND DELHI WHIC H APPARENTLY MENTIONED THAT M/S.LIFELINE DRUGS & PHARMA LTD., WA S A PENNY STOCK COMPANY AND STATEMENTS OF ONE SHRI PRAVIN AGARWAL A ND ONE SHRI PAWAN KALYAN. CONTENTION OF THE LD. AUTHORISED REP RESENTATIVE WAS ITA NO.1264/CHNY/2018 :- 3 -: THAT PURCHASE OF THE SHARES WAS GENUINE THOUGH IT W AS DONE OFF MARKET. AS PER THE LD. AUTHORISED REPRESENTATIVE, SALE OF THESE SHARES WAS MADE THROUGH RECOGNIZED STOCK EXCHANGE AND OUGH T NOT HAVE BEEN DISBELIEVED. ALL RECEIPTS, AS PR THE LD. AUTHO RISED REPRESENTATIVE WERE THROUGH BANKING CHANNELS. RELYING ON THE DECIS ION OF CO-ORDINATE BENCH IN THE CASES OF VIMALCHAND GULABCHAND VS. ITO, PRAVEEN CHAND VS. ITO, GATRAJ JAIN & SONS (HUF) VS. ITO AND MAHEN DRA KUMAR BHANDARI VS. ITO (ITA NOS.2003/17, 1721/2017, 2293/ 17 AND 2748/2017 DATED 06.04.2018), LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN SIMILAR CASES, THE TRIBUNAL HAD DIRECTED TH E LD. ASSESSING OFFICER TO RECONSIDER THE ISSUE ADHERING TO THE RUL ES OF NATURAL JUSTICE. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMI TTED THAT THERE WERE SUFFICIENT AND MORE REASON FOR LOWER AUT HORITIES TO DISBELIEVE THE TRANSACTIONS CLAIMED IN THE SHARES OF M/S.LIFELINE DRUGS & PHARMA LTD. AS PER THE LD. DEPARTMENTAL REPRESEN TATIVE, ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW, HOW HE IDEN TIFIED THE SHARES OF M/S.LIFELINE DRUGS & PHARMA LTD., FOR MAKING AN OFF MARKET PURCHASE. LD. DEPARTMENTAL REPRESENTATIVE ALSO PL ACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE O F SHRI HEERACHAND KANUNGA VS. ITO (ITA NOS.2786 & 2787/CHNY/2017, DATED 03.05.2018). ITA NO.1264/CHNY/2018 :- 4 -: 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTE D THAT LONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE AS EXEMPT U/S .10(38) OF THE ACT AROSE ON ACCOUNT OF SALE OF EQUITY SHARES OF M/S.LI FELINE DRUGS & PHARMA LTD. IT APPEARS THAT ASSESSEE COULD NOT PROD UCE ANY EVIDENCE AS TO HOW IT IDENTIFIED EQUITY SHARES OF M/S.LIFELI NE DRUGS & PHARMA LTD., FOR MAKING AN OFF MARKET PURCHASE. IN THE CA SE OF SHRI HEERACHAND KANUNGA (SUPRA) RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE WHAT WAS HELD BY THE CO-ORDINATE BEN CH IS REPRODUCED HEREUNDER:- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMIT TEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT T O BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO BE SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE S IDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADMITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL G AINS TO HIS CLIENTS. THE SAID SHRI ASHOK KUMAR KAYAN ALSO ALLE GEDLY SEEMS TO HAVE PROVIDED THE ASSESSEES NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STATEMENT GIVEN BY SH RI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF A SSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVI DED TO THE ASSESSEE FOR CROSS-EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROSS-EXAMINATION, THE STATEMENT REMAINS MERE INFOR MATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMEN T. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PU RCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTAL ING INTO RS.3,00,000/-. THE ASSESSEE CLAIMS TO HAVE PAID CAS H FOR THE PURCHASE OF THESE SHARES. THE PRIMARY QUESTION WOU LD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BE EN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHARE CERTIFICATES AND THE SHARE TRANS FER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A (3)? WAS ITA NO.1264/CHNY/2018 :- 5 -: THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF TH E ASSESSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSACTION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANS FERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE? TO WHOM WERE THE SHARES SOLD DURING THE ASSESSMENT YEARS 2010-11 & 2011-12? WHEN WERE THE CHEQUES RECEIVED BY THE ASSESSEE? FROM WH OM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH D EPOSIT IMMEDIATELY PRIOR TO THE ISSUING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE SHARES OF THE ASSES SEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATE S THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL, KO LKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE A SSESSEE IN GOOD FAITH HAS PURCHASED THE SHARES OF M/S.BPL FROM A SUB-BROKER IN HIS FRIENDS CIRCLE. WHAT IS THE TRUE NATURE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTUALLY PURCHASE THE SH ARES? DID THE ASSESSEE TAKE POSSESSION OF THE SHARES IN ITS P HYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTI ONED THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRAD ING IN SHARES. IF THIS IS SO, DOES THE DEMAT ACCOUNT SHOW SUCH TRA NSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRA NSACTION. THUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING THE APP EALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SH OW THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTH S. THIS IS BECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND T HE SHARES OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOU NT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSS ESSION OF THE SHARES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHCOMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS S UBMITTED BY THE LD.AR THAT THE DEMAT WAS DONE ON VARIOUS DATES. TH EN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFER ENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCHASED T OGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M/S.BPL COMPA NY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD T O THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/- TO RS.35 2/- IN A PERIOD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE TH E SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKER OF T HE STOCK EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WOULD HA VE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE NOT COM ING OUT OF THE ASSESSMENT ORDER NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THIS APPEAL MUST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUD ICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBST ANTIATE ITS CASE AND WE DO SO. ITA NO.1264/CHNY/2018 :- 6 -: 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGAINST T HE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GI VEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVID ED TO THE ASSESSEE FOR CROSS-EXAMINATION. HOWEVER, THE ASSES SEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITAL GAIN S IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10 (38) BY PROVIDING ALL SUCH EVIDENCES AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCING THE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURC HASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, F RIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. 6. FACT SITUATION IN THE CASE BEFORE ME IN MY OPINION IS SIMILAR TO THE ONE DECIDED BY THE CO-ORDINATE BENCH. THE QU ESTION IS WHETHER TRANSACTIONS CLAIMED BY THE ASSESSEE WERE REAL OR S HAM. LD. ASSESSING OFFICER PREDOMINATELY RELIED ON THE REPORTS OF DI RECTORATE OF INCOME TAX (INVESTIGATION) KOLKATA AND DELHI, AND THE STAT EMENT OF ONE SHRI PRAVIN AGRAWAL AND ONE SHRI PAWAN KALYAN FOR COMING TO A CONCLUSION THAT M/S.LIFELINE DRUGS & PHARMA LTD., WAS A PENNY STOCK COMPANY AND THE TRANSACTIONS WERE ENTERED ONLY FOR CLAIMIN G EXEMPTION U/S.10(38) OF THE ACT ON LONG TERM CAPITAL GAINS WH ICH WERE BOGUS. HOWEVER, IN MY OPINION, BEFORE RELYING ON SUCH INV ESTIGATION REPORTS AND STATEMENT OF A THIRD PARTY, IT SHOULD HAVE BEEN PUT TO AN ASSESSEE FOR REBUTTAL. RULES OF NATURAL JUSTICE REQUIRES TH AT EVIDENCE WHICH IS USED AGAINST THE ASSESSEE IS FIRST PUT TO IT AND EX PLANATION SOUGHT, BEFORE RELIANCE IS PLACED ON SUCH EVIDENCE. I AM T HEREFORE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY T HE LD. ASSESSING ITA NO.1264/CHNY/2018 :- 7 -: OFFICER. I SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES AND REMIT THE QUESTION REGARDING GENUINENESS OF THE CLAIM OF L ONG TERM CAPITAL GAINS FROM ALLEGED SALE OF SHARES OF M/S.LIFELINE DRUGS & PHARMA LTD., BACK TO THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ASSESSEE HAS TO BE GIVEN ALL RECORDS REL IED ON BY THE LD. ASSESSING OFFICER SO THAT IT CAN OFFER ITS EXPLANAT ION. LD. ASSESSING OFFICER IS ALSO TO KEEP IN MIND THE SPIRIT OF THE DIRECTION GIVEN BY THE TRIBUNAL IN THE CASE OF HEERACHAND KANUNGA (SUPRA) WHILE COMING TO A CONCLUSION. GROUNDS 2 TO 11 OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 15 TH DAY OF OCTOBER, 2018, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER $ / CHENNAI % / DATED: OCTOBER 15, 2018 TLN () *) / COPY TO: 1 . / APPELLANT 3. + () / CIT(A) 5. ) 0 / DR 2. / RESPONDENT 4. + / CIT 6. / GF