RUCHIT SAHILESH SHAH, MUMBAI V. ITO 30(3)(2), MUMBAI

ITA 1358/MUM/2020

AI Insights

The case involves Ruchit Shailesh Shah, the appellant, who challenged the order of the Commissioner of Income Tax (Appeals)-41, Mumbai, regarding the assessment year 2014-15. The primary issues revolved around the addition of Rs. 73,06,532 as unexplained credit under section 68 and the non-allowance of set off for carried forward business losses of Rs. 61,04,247 under section 72. The Income Tax Officer had initially treated the long-term capital gains from the sale of shares as a colorable device, based on findings from the Investigation Wing and statements from Mr. Vipul Bhat, who was implicated in using the scrips for bogus long-term capital gains. The Tribunal upheld the addition under section 68 but remanded the issue of business loss for further assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125820 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 06-02-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 27-02-2020
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Search and seizure; Accommodation entries; Set aside; Capital Gains
• Section: 68; 69; 143(3); 250; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI G.S. PANNU, PRESIDENT AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.1358/Mum./2020 (Assessment Year : 2014–15) Ruchit Shailesh Shah Rushikesh Shakti Nagar Adarsh Dugdhalaya, Marve Road Malad (West), Mumbai 400 064 PAN – AQTPS5650D ................ Appellant v/s Income Tax Officer Ward–30(3)(2), Mumbai ................Respondent Assessee by : Shri Hitesh Shah Revenue by : Shri P.D. Chogule Date of Hearing – 07/02/2023 Date of Order – 21/03/2023 O R D E R PER BENCH The present appeal has been filed by the assessee challenging the impugned order dated 06/12/2019, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)-41, Mumbai [“learned CIT(A)”], for the assessment year 2014–15. 2. In this appeal, the assessee has raised following grounds:– “GROUND 1:- On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeal) - 41, MUMBAI (hereinafter referred to as 'the CIT(A)') has erred in not discussed at all and therefore his order lacks deficiency. Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 2 The appellant being aggrieved therefore prays that the appellant order u/s. 250 be set aside for fresh consideration on the principle of natural of justice. GROUND II :- On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeal) - 41, MUMBAI (hereinafter referred to as 'the CIT(A)') erred in confirming the addition made to the extent of Rs. 73,06,532/- u/s. 68 of the IT Act as unexplained credit as against long term capital gain shown by the appellant on sale of shares of Rs. 73,06,532/- u/s. 10(38). The appellant being aggrieved, therefore prays that the addition u/s. 68 Rs. 73,06,532/- is unwanted, unwarranted, illegal, bad-in-law and hence be deleted. GROUND III On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeal) 41, MUMBAI (hereinafter referred to as the CIT(A)) has erred in not allowing the set off of the carried forward business loss of Rs. 61,04,247/- u/s. 72 as claimed by the appellant. The appellant submits that on facts and circumstances of the case as well as in the law, entire business loss of Rs. 61,04,247/- disclosed in the return of income and prima facie accepted in the assessment framed u/s. 143(3) ought to have been set off against the income under the other heads of income (including addition made u/s. 68 and for 69) as per the mandated circular no: 11/2019 dated 19.06.2019. The appellant being aggrieved, therefore prays that the deduction of Rs. 61,04,247/- is legal and allowable and hence be allowed to be set off from the current year's assessed income. GROUND IV :- The appellant craves leave to add, to amend, to alter and/or to withdraw any of the grounds at the time of hearing.” 3. The brief facts of the case as emanating from record are: The assessee is an individual. For the year under consideration, the assessee filed his return of income on 28/09/2014 declaring a total income of Rs.1,33,340. During the year, the assessee has shown income from salary, loss in trading in shares, income from other sources, and claimed exempt dividend, PPF interest, and exempt long-term capital gains of Rs.73,06,532. The return of income filed by Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 3 the assessee was initially selected under the category of „limited scrutiny‟. However, subsequently, on the basis of ITS/AIR details that the assessee has earned long-term capital gains on the sale of shares of Sunrise Asian Ltd, which has been identified by the Investigation Wing to be one of the scrips used for obtaining bogus long-term capital gains, the scrutiny was converted to „complete scrutiny‟ pursuant to approval from Pr.CIT-30, Mumbai. During the course of assessment proceedings, the Assessing Officer (“AO”) considered the information received from the Investigation Wing as well as the statement recorded, during the course of survey and search proceedings, of Mr. Vipul Bhat, who has admitted to having controlled the affairs of Sunrise Asian Ltd and also admitted to the fact that the scrips have been used of providing accommodation entries of bogus long term capital gain. The AO also took into consideration the trade data downloaded from the system that shares of Sunrise Asian Ltd sold by the assessee have been picked up by the entities who are mostly entities of Mr. Vipul Bhat and their names figure in the list of entities divulged by him before the investigation authorities. Accordingly, the AO vide order dated 26/12/2016 passed under section 143(3) of the Act held the long-term capital gains of Rs.76,15,800 claimed as exempt by the assessee to be only a colourable device and added the same to the total income of the assessee under section 68 of the Act. Further, the AO also made an addition of Rs.3,65,326, i.e. 5% of the total amount of long-term capital gains, as commission paid to the entry operator under section 69 of the Act. 4. In the appeal before the learned CIT(A), despite various notices being issued, there was neither any compliance on behalf of the assessee nor any Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 4 reply/submission filed on behalf of the assessee. Accordingly, vide impugned order dated 06/12/2019, the learned CIT(A) dismissed the appeal filed by the assessee on the basis of material available on record. Being aggrieved, the assessee is in appeal before us. 5. Ground No. 1 raised in assessee‟s appeal was not pressed during the hearing. Accordingly, the said ground is dismissed as not pressed. 6. In ground No. 2, the grievance of the assessee is against the disallowance of exemption of long-term capital gains claimed under section 10(38) by treating the share transaction as non-genuine and making the addition under section 68 of the Act. 7. We have considered the rival submissions and perused the material available on record. The assessee acquired 15,000 shares of Conart Traders Ltd for a consideration of Rs. 3 lakhs in physical form. Thereafter, Conart Traders Ltd and Santoshima Tradelinks Ltd amalgamated with Sunrise Asian Ltd and the assessee received 15,000 shares of Sunrise Asian Ltd in lieu of his shareholding in Conart Traders Ltd. During the year under consideration, the assessee sold 15,000 shares of Sunrise Asian Ltd for the trade value of Rs.76,15,800 and claimed exemption of long-term capital gains. During the assessment proceedings, it was observed that the scrip in which the assessee has traded is identified as a scrip used for obtaining bogus long-term capital gains by the Investigation Wing of the Department. Accordingly, pursuant to the requisite approval, the case was converted from limited scrutiny into complete scrutiny. During the assessment proceedings, it was observed that Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 5 the assessee was asked to submit the details of the purchase of shares of Sunrise Asian Ltd along with documentary evidence such as mode of purchase of shares, mode of payment, bank statement highlighting the payment, and copy of Demat account statement. The AO also provided the relevant portion of the statement of Mr. Vipul Bhat who had admitted that companies namely Conart Traders Ltd., Santoshima Tradelinks Ltd., and Sunrise Asian Ltd were just paper companies operated by him in order to facilitate the bogus accommodation entries to its beneficiaries. 8. The AO noted that the scrip was listed on BSE in the financial year 2009- 10. In the financial year 2010-11, the trade in the scrip was suspended by the BSE. Thereafter, the suspension was revoked with effect from 16/08/2011 and that trading began on 17/08/2011. The AO also noted that many beneficiaries who have gained by selling the scrip had acquired the shares through preferential allotment from Santoshima Tradelinks Ltd. After the preferential allotment of shares and subsequent merger of Santoshima Tradelinks Ltd with Sunrise Asian Ltd, the active trading in the shares of Sunrise Asian Ltd started with effect from 16/10/2012. The AO noted that Sunrise Asian Ltd is one of the 84 scrips covered by the Investigation Wing and found to be a bogus company, which was formed for facilitating accommodation entries of long-term capital gains to its beneficiaries. In the assessment order, the AO also considered the monthly analysis of the scrip Sunrise Asian Ltd downloaded from the website of BSE. From the above analysis, the AO noted that within a period of one year, the price of the scrip was increased from Rs.63 on 16/10/2012 to Rs.506.25 on 20/08/2013 and thus there has been a rise of 803% in price of Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 6 shares without any corporate announcement regarding any major investment or acquisition. Further, the AO observed that no significant changes have been made by the company during this period in order to warrant such a phenomenal price rise. Thus, the reported profits were not commensurate with the price rise. The AO also observed that after the shares have been purchased and the long-term capital gain transaction is complete, the price of the scrip decreased drastically from the closing price of Rs.447.8 in 2014 to Rs.62.2 in 2015 and Rs.3.97 in 2016. Accordingly, the AO observed that Sunrise Asian Ltd is just a shell company, which has been used to convert the unaccounted money of the beneficiaries into accounted one by channelising it in such a way that outwardly all transactions appear seemingly normal, proper, and genuine. 9. The AO also referred to the search and seizure operation carried out by the Investigation Wing, Mumbai on Mr. Vipul Bhat who was a key person controlling and managing the affairs in the case of Sunrise Asian, Conart Traders Ltd as well as Santoshima Tradelinks Pvt. Ltd. The AO also took into consideration the statement recorded by Mr. Vipul Bhat wherein he admitted to having controlled the affairs of Sunrise Asian Ltd and also admitted to the fact that the scrip has been used of providing accommodation entries of long-term capital gains. In his statement, Mr. Vipul Bhat admitted that all the entities were managed and controlled by him wholly, though on paper it was opened in the name of various persons. It was also claimed by Mr. Vipul Bhat that he is an accommodation entry provider and has earned commission in cash for doing the work of the entry provider. Mr. Vipul Bhat also confirmed the Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 7 statements made by the rest of the entities whose statement was recorded on oath, during the search and survey action, by the Investigation Wing. The Investigation Wing found that the entire books of accounts, Income Tax related documents, company law-related matters, VAT/sales tax documents, professional tax registration documents, personal partnership deeds, common seal and stamps, and PAN card of all the bogus entities, which were controlled, managed and operated by Mr. Vipul Bhat for providing bogus entries, were found at the premises 1407, 14 th floor, New Jalphalwadi, Police Colony, TARDEO, Mumbai-400034. It was further found that this premises was neither a registered office of any of the entities nor was related to any of the entities which were searched. The AO observed from the trade data downloaded from the system that shares of Sunrise Asian Ltd, which were sold by the assessee, have been picked up by entities who are major entities of Mr. Vipul Bhat whose names figure in the list of 347 entities divulged by him before the investigation authorities. 10. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the Securities and Exchange Board of India (“SEBI”) had conducted a detailed investigation into the affairs of Sunrise Asian Ltd and the entities who were involved in the price manipulation of shares. However, the assessee was not part of this investigation and thus the entire share transaction and long-term capital gains earned by the assessee are not bogus. From the perusal of the final order dated 06/09/2021 passed by the SEBI, forming part of the paper book, we note that the SEBI had barred Sunrise Asian Ltd and other entities to whom the assessee had sold the shares from Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 8 accessing the securities market or buy, sell or otherwise deal in the securities market, either directly or indirectly or be associated with the securities market in any manner for a period of 6 months to one year. Further, we find that the SEBI found the manipulative trade executed by Sunrise Asian Ltd., as well as the entities to whom these shares were sold by the assessee. In view of the aforesaid facts, we are of the considered opinion that just because the assessee was not part of the investigation conducted by SEBI, the same does not absolve him from proving the genuineness of the transaction in shares of Sunrise Asian Ltd. under section 68 of the Act. 11. It is also the plea of the assessee that the payment for the acquisition of shares was made from the bank account and the shares were dematerialised and credited to the Demat account maintained by the assessee with HDFC Bank Ltd. It was further the submission of the assessee that during the year, the assessee sold the shares through the broker on BSE. In this regard, the assessee furnished the contract note of the broker and bank passbook evidencing the receipt of the sale consideration of shares of Sunrise Asian Ltd through account payee checks. However, as noted above, not only Sunrise Asian Ltd but the exit providers were also found to be involved in manipulative trade practices by the SEBI. Further, Mr. Vipul Bhat in his statement had admitted and confirmed that all the entities controlled and managed by him are mere bogus paper companies and he is involved in providing accommodation entry on a commission basis. Thus, not only Sunrise Asian Ltd but Conart Traders Ltd and Santoshima Tradelinks also, whose shares were initially purchased by the assessee in physical form, were found to be Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 9 belonging to Mr. Vipul Bhat in the present case. Accordingly, we find no infirmity in the findings of the AO, which were confirmed by the learned CIT(A) vide impugned order. As a result, ground No. 2 raised in assessee‟s appeal is dismissed. 12. The issue arising in ground No. 3, raised in assessee‟s appeal, is pertaining to the disallowance of set off of carry forward business losses of Rs.61,04,247 under section 72 of the Act. 13. During the hearing, the learned AR submitted that during the year, the assessee in his return of income declared a loss of Rs.61,04,247, which was not set off against the income determined under section 115 BBE of the Act. In this regard, the learned AR placed reliance upon the CBDT Circular No.11/2019, dated 19/06/2019, and submitted that the CBDT has clarified that the assessee is entitled to claim set off of loss against income determined under section 115 BBE of the Act till the assessment year 2016-17. 14. We find that though the issue of non-quantification of business loss declared by the assessee in his return of income was raised before the learned CIT(A), however, in absence of any evidence to support the contention during the appellate proceedings, the learned CIT(A) dismissed the ground filed by the assessee. We find that the AO has also not quantified the loss claimed by the assessee. Accordingly, we deem it appropriate to remand this issue to the file of AO for quantification of loss and set off of same, if any, as per law. As a result, ground No. 3 raised in assessee‟s appeal is allowed for statistical purposes. Ruchit Shailesh Shah ITA no.1358/Mum./2020 Page | 10 15. In the result, the appeal by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 21/03/2023 Sd/- G.S. PANNU PRESIDENT Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 21/03/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai