Rajpat Pandya, Kolkata V. ITO, Ward-36(1), Kolkata

ITA 1365/KOL/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9337 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 02-06-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Principle of natural justice; Penny stocks; Capital Gains
• Section: 68; 148; 263; 143(3); 142(1); 143(2)

Judgement Text

ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, KOLKATA Before Dr. Manish Borad, Accountant Member & Shri Sonjoy Sarma, Judicial Member I.T.A. No. 509/KOL/2019 Assessment Year: 2013-2014 Sri Kailash Prasad Agarwal,.....................................................Appellant 11A, Ekta Residency, 174A, Manicktala Main Road, Manicktala-700054, West Bengal [PAN:ACDPA1409Q] -Vs.- Income Tax Officer,.....................................................................Respondent Ward-22(2), Kolkata, 54/1, Rafi Ahmed Kidwai Road, Kolkata-700016 Appearances by: N o n e, appeared on behalf of the assessee Smt. Ranu Biswas, Addl. CIT(DR), appeared on behalf of the Revenue Date of concluding the hearing : 2 nd August, 2022 -A N D - I.T.A. No. 1365/KOL/2019 Assessment Year: 2014-2015 Rajat Pandya,.............................................................................Appellant 36, Strand Road, Kolkata-700001 [PAN:AXUPP6416G] -Vs.- Income Tax Officer,.....................................................................Respondent Ward-36(1), Kolkata, Aayakar Bhawan, 110, Shantipally, Kolkata-700107 Appearances by: N o n e, appeared on behalf of the assessee Smt. Ranu Biswas, Addl. CIT(DR), appeared on behalf of the Revenue Date of concluding the hearing : 2 nd August, 2022 Date of pronouncing the order: 31 st October, 2022 ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 2 O R D E R Per Dr. Manish Borad, Accountant Member:- These captioned two appeals filed by different assessees are against the separate orders of ld. CIT(Appeals) passed against respective separate assessment orders by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). 2. Since common issue is involved in both the appeals relating to the disallowance of claim of exemption u/s. 10(38) of the Act in respect of long-term capital gains (LTCG) arising from sale of shares, we dispose of both the captioned appeals by this consolidated order for the sake of convenience and brevity. 3. Briefly stated, facts are narrated hereunder for each of the ITA No. Captioned above, in seriatim: 3.1. ITA No. 509/KOL/2019 (AY 2013-14): Brief facts of the case are that the assessee is an individual and filed e-return of income on 01.10.2013 declaring total income of Rs.11,93,400/-. The assessee has claimed exempt income under section 10(38) of the Income Tax Act at Rs.2,26,86,516/- from sale of equity shares of CCL International Limited. The case of the assessee was selected for scrutiny assessment under CASS. Thereafter, the ld. Assessing Officer based on the information received from the Directorate of Income Tax (Investigation), Kolkata, which has submitted a report on 27.04.2015, wherein after undertaking the investigation, 84 listed companies were found to be the penny stock companies through which bogus long-term capital gain entries were taken in large numbers by the beneficiaries, issued notices under section 148 of the Act, which were duly served upon the assessees and reassessment proceeding was carried out. During the course of assessment proceedings, ld. Assessing Officer found that the assessee has shown exempt income under section 10(38) of the Act at Rs.2,26,85,516/- from sale of 1,87,500 ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 3 equity shares of CCL International Limited. Ld. Assessing Officer observed that the said shares were purchased by the assessee on 17.02.2011 @ Rs.4/- per share and within a period of 18 to 24 months and the shares were sold at an average price ranging at Rs.141/-. Ld. Assessing Officer also noticed that CCL International Limited was also in the list of 84 penny stock companies by the Directorate of Income Tax (Investigation). Financial statements of this Company were also taken note by the ld. Assessing Officer, wherein the Company had a meagre income, which did not support the sudden increase in the price of shares. Ld. Assessing Officer also noticed that there was a sudden increase and thereafter sudden decrease, which showed that some beneficiaries were provided the benefit of long-term/short-term capital loss. Based on these observations, ld. Assessing Officer opined that the alleged sum is a bogus long-term capital and is liable to be added as unexplained cash credit under section 68 of the Income Tax Act. The ld. Assessing Officer further made an addition of unexplained commission expenditure @0.5% of the Long-term capital gain, which as per the ld. Assessing Officer, the assessee had paid to arrange the said sum. Appeal against this addition made by the Assessing Officer before the ld. CIT(Appeals), and the assessee did not get any relief from the ld. CIT(Appeals). Aggrieved, the assessee is now in appeal before this Tribunal. 3.2. ITA No. 1365/KOL/2019 (A.Y. 2014-15) : Brief facts of the case are that the assessee is in individual, who derived income from business, capital gain and other sources. The assessee filed his return of income on 24.07.2014 declaring total income of Rs.1,96,660/-. The case was selected for scrutiny assessment through CASS followed by serving of notices under section 143(2) and 142(1) of the Act. During the course of assessment proceedings, the ld. Assessing Officer noticed that the assessee has earned long-term capital gain of Rs.52,83,100/- from sale of equity shares of Parag Shilpa Investments Limited and exemption under section 10(38) was claimed. The ld. Assessing Officer based on the information received by it from Directorate of Income Tax ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 4 (Investigation), Kolkata found that M/s. Parag Shilpa Investments Limited is part of the list of 84 listed companies, which were found to be the penny stock companies and are managed as dummy companies involved in the price rigging by the promoters and entry operators for providing bogus long-term capital gain to various beneficiaries. The assessee primarily purchased 10,000 equity shares of M/s. Swift IT Infrastructure & Services Pvt. Limited from off-market, which was subsequently merged with M/s. Parag Shilpa Investments Limited. The market prices of the scrip and market capitalization of the company in the month of May, 2012 were Rs.0.20/- and Rs.1.20 lakhs respectively. Thereafter within three years, the market price of the scrip and the market capitalization of the company had been rallied to Rs.90.50 and Rs.4865.28 crores respectively on 17.12.2014. Therefore, within twenty months, the price jumped nearly 381 times. The assessee failed to satisfy the ld. Assessing Officer that M/s. Parag Shilpa Investment is not a penny stock company by placing any credible information. The ld. Assessing Officer accordingly added the alleged long-term capital gain of Rs.52,83,100/- as unexplained cash credit under section 68 of the Act and also made an addition of commission expenditure @0.5% of the amount of loss on sale of shares i.e. Rs.26,416/- and assessed income at Rs.55,06,180/-. The addition made by the ld. Assessing Officer was challenged by the assessee before the ld. CIT(Appeals), but no relief was granted by the ld. CIT(Appeals). Being aggrieved, the assessee is now in appeal before the Tribunal. 4. None appeared on behalf of the assessees when the cases were called for hearing. Per contra, the ld. D.R. vehemently supported the order of ld. CIT(Appeals) and submitted that the issue stands squarely covered by the judgment of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022. 5. We have heard the ld. D.R. and perused the relevant material available on record. The common issue raised before us is with regard to ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 5 genuineness of the claim of exempt income under section 10(38) of the Act in respect of long-term capital gain arising sale of equity shares from the listed companies, which were found to be the penny stock companies by both the lower authorities and the long-term capital gain so claimed found to be bogus in nature. We find that recently this Tribunal has adjudicated the similar issue under identical in the case of Shyam Sunder Bajaj in ITA No. 2552/KOL/2018 and others vide order dated 17 th October, 2022 and after placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022, observed as under:- “4. All the present cases were selected for scrutiny u/s. 143(3) through CASS and the issue in all of them for selection relates to ‘suspicious long term capital gain on shares’. In all the above appeals, according to the ld. AO, LTCG reported by the assessee in respective return was bogus and the entire transactions were done with the objective to introduce unaccounted money of the assessee in the books by using the route of LTCG which was exempt from tax u/s 10(38) of the Act, except in one case, where the assessee has booked trading loss on transaction of shares of two Companies, which have been treated as penny stock. Thus, ld. AO held that the said LTCG/loss are fabricated/engineered transactions by the respective assessees, sale of which falls under the category of penny stocks and the same were treated as bogus which were added in the total income by treating it as unexplained cash credit u/s. 68 of the Act. Ld. AO based his decision of treating the impugned transaction of sale of shares as bogus transaction by relying on the report of Investigation Wing of the Department wherein the Investigation Wing of the Department had studied the modus operandi of rigging the prices of penny stocks and generation of capital gain /trading loss there from. On appeal, ld. CIT(A) confirmed the action of the ld. AO. Aggrieved, assessees are in appeal before the Tribunal. 5. Recently on 14.06.2022, the Hon’ble jurisdictional High Court of Calcutta passed a judgment in the case of Swati Bajaj and others [2022] 139 taxmann.com 352 (Cal) dealing with set of cases with similar fact patterns as narrated above for the present appeals under consideration before us. Hon’ble jurisdictional High Court by taking the report of the Directorate of Investigation of the Department as the basis, gave its observations and findings, which are summarized hereunder. 5.1. There are two category of cases dealt with by the Hon’ble High Court, viz. first category being those arising out of the order of Tribunal dated 26.06.2019 in which 90 appeals filed by the assessees were allowed and second category is of those cases where1 assessee has challenged the assumption of jurisdiction by CIT under section 263 of the Act. In the present set of appeals before us, we are concerned with the first category whose relevant observations and findings by the Hon’ble High Court are noted below: ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 6 a) From the assessment order passed in the case of the assessee Smt. Swati Bajaj, we find that the genesis of the issue commenced from an investigation report submitted by the Directorate of Income Tax, Investigation, Kolkata (DIT). The investigation report has been prepared by the Deputy Director of Income Tax, Investigation Unit -II and III, Kolkata. [para 43] b) The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such statements of violation of principles of natural justice the assessees have not made out any case. [para 65] c) The test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, the methodology adopted by the revenue cannot be faulted. [para 69] d) Test of preponderance of probabilities have to be applied and while doing so, the court cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. [para 73] e) The assessee was not named in the report and when the assessee makes the claim for exemption, the onus of proof is on the assessee to prove the genuinity. [para 73] f) It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. [para 73] g) The assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 7 phenomenal and fanciful rise in price in a short span of time. [para 75] h) The exercise that was required to be done by the Tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the 'players' can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the Tribunal which exercise has not been done. [para 99] i) The assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee. [para 99] j) The tribunal being the last fact finding authority was required to go deeper into the issue as the matter have manifested large scale scam. Thus, the orders of the tribunal are not only perfunctory but perverse as well. The exercise that was required to be done by the tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the "players" can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the tribunal which exercise has not been done. [para 99] k) In such factual scenario, the Assessing Officers as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion. [para 99] l) For all the above reasons, we hold that the Tribunal committed a serious error in setting aside the orders of the CIT(A) who had affirmed the orders of the Assessing Officer. [para 101] m) In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A). [para 102] 6. In the context of factual matrix of the present appeals before us narrated above, the position of law as enunciated by the Hon’ble jurisdictional High Court ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 8 of Calcutta in Swati Bajaj (supra) carrying force of binding nature on the issue under consideration for us, was confronted to the respective ld. Counsels of the assessee who appeared before us. Ld. Counsels were fair enough to state that issue involved in these appeals is squarely covered against the assessee by the said decision as the fact involved are identical to that which were before the Hon’ble High Court. For cases where none appeared before us on behalf of the assessee, the relevant factual matrix was captured with the assistance of Ld. Sr. DR / CIT DR (already narrated above). Since the matter is squarely covered by the decision of Hon’ble jurisdictional High Court of Calcutta in the case of Swati Bajaj & others (supra), we have taken up these also for adjudication ex parte, qua the assessee. 7. After hearing both the sides and taking into consideration the factual matrix of the cases before us vis-à-vis the decision of Hon’ble jurisdictional High Court of Calcutta in Swati Bajaj & others (supra), we respectfully following the said decision carrying the force of binding nature, being the jurisdictional High Court, dismiss the appeals of the assessee and restore the order of the respective ld. AO as affirmed by the respective ld. CIT(A)”. 6. Since no binding precedence in favour of assessee is placed before us, we respectfully following the decision of this Tribunal dated 17.10.2022 as well as the judgment of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj & Others (supra) find no infirmity in the orders of the ld. CIT(Appeals) and, therefore, dismiss all the grounds raised by the assessee(s). 7. In the result, both the appeals of the captioned assessee(s) are dismissed. Order is pronounced in the open court on October 31 st , 2022 Sd/- Sd/- (Sonjoy Sarma) (Manish Borad) Judicial Member Accountant Member Kolkata, the 31 st day of October, 2022 Copies to : (1) Sri Kailash Prasad Agarwal, 11A, Ekta Residency, 174A, Manicktala Main Road, Manicktala-700054, West Bengal (2) Rajat Pandya, 36, Strand Road, Kolkata-700001 (3) Income Tax Officer, Ward-22(2), Kolkata, 54/1, Rafi Ahmed Kidwai Road, Kolkata-700016 ITA Nos.509 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 9 (4) Income Tax Officer, Ward-36(1), Kolkata, Aayakar Bhawan, 110, Shantipally, Kolkata-700107 (5) Commissioner of Income Tax (Appeals)- Kolkata (6) Commissioner of Income Tax- , Kolkata; (7) The Departmental Representative (8) Guard File TRUE COPY By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.