PHOOL CHAND MANGAL CHAND, CHENNAI V. ITO NON CORPORATE WRD 14(3), CHENNAI

ITA 1495/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8794 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 13-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G D JAYANTHI ANGAYARKANNI
• Assessee Lawyers: R PADMANABHAN
• Keywords: Income from undisclosed sources; Principle of natural justice; Earning of tax free income; Wrong claim; Set aside; Capital Gains
• Section: 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.1495/CHNY/2019 ( / ASSESSMENT YEAR: 2014-15) M/S. PHOOL CHAND MANGAL CHAND, NO.37, ANNA NEDUMPATHI, CHOOLAIMEDU, CHENNAI 600 094. VS THE INCOME TAX OFFICER, NON-CORPORATE WARD 14(3), CHENNAI 34. PAN: AAEHP 1953M ( /APPELLANT) ( /RESPONDENT) APPELLANT BY : SHRI R. PADMANABHAN, CA RESPONDENT BY : SMT. G.D. JAYANTHI ANGAYARKANNI, JCIT /DATE OF HEARING : 20.08.2019 !' /DATE OF PRONOUNCEMENT : 16.09.2019 ' / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-7, CHENNAI IN ITA NO.319(T)/CIT(A)-7/2016-17 DATED 27.03.2019 FOR THE ASSESSMENT YEAR 2014-15. 2 ITA NO.1495/CHNY/2019 2. M/S. POOL CHAND MANGAL CHAND, THE ASSESSEE, A HUF, CLAIMED RS.23,98,290/- AS AN EXEMPT INCOME U/S.10(3 8). THE AO RECEIVED INFORMATION BASED ON THE INVESTIGATIONS CO NDUCTED BY THE VARIOUS REGULATORY AUTHORITIES WHICH INDICATED THAT M/S. KAPPAC PHARMA LIMITED WAS A COMPANY WITH LITTLE OR NO INHE RENT VALUE, ITS PRICE WAS RIGGED AND MANIPULATED FOR THE SOLE PURPO SE OF CONVERSION OF UNACCOUNTED INCOME INTO APPARENTLY GENUINE INCOM E AND CLAIMING THE SAME AS AN EXEMPT INCOME AND HENCE REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AMOUNT CLAIMED AS AN EXEMP T INCOME BE NOT TAXED ETC. AFTER CONSIDERING ASSESSEES REPLY ETC., COMPLETED THE ASSESSMENT PRIMARILY BASED ON THE INVESTIGATION REP ORT AND REJECTED THE ASSESSEES EXEMPTION CLAIM. AGGRIEVED, THE ASS ESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED TH IS APPEAL. 3. IT WAS SUBMITTED BY LD.AR THAT THE ISSUE IN THIS A PPEAL IS AGAINST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFICER IN TREATING THE PURCHASE A ND SALE OF SHARES BY THE ASSESSEE AS PENNY STOCK TRANSACTIONS. THE L D.AR SUBMITTED THAT LD.CIT(A) DISMISSED THE APPEAL MAINLY RELYING ON THE REPORT OF 3 ITA NO.1495/CHNY/2019 THE INVESTIGATION WING OF THE DEPARTMENT AND WITHOU T APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, HE PLEADED TO ALLOW THE APPEAL. PER CONTRA, THE LD.DR SUBMITTED T HAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10 (38) BUT HE HAS NOT FU RNISHED ANY MATERIAL IN SUPPORT OF HIS CLAIM AND TO PROVE THE G ENUINENESS OF THE TRANSACTIONS. THEREFORE, REITERATING THE FACTS AND CIRCUMSTANCES OF THIS CASE FROM THE ORDERS OF THE LOWER AUTHORITIES, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT THE ASSESSEE HAS NOT BEEN GIVEN A FAIR OPPORTUNITY TO PROVE THE GENUINENESS BUT THE ASSESSMENT HAS BEEN MADE PRIMAR ILY BASED ON THE EVIDENCES COLLECTED BY THE REVENUE IN THE COURS E OF THE INVESTIGATION CONDUCTED BY THEM ON THE BROKERS / SH ARE BROKING ENTITIES ETC. THIS IS NOT PERMISSIBLE. THIS BEING S O, IN THE INTERESTS OF NATURAL JUSTICE, THE ISSUE OF THE GENUINENESS OF TH E TRANSACTIONS REQUIRE RE-ADJUDICATION. SINCE, THE RIGHT TO EXEMPT ION MUST BE ESTABLISHED BY THOSE WHO SEEK IT, THE ONUS THEREFOR E LIES ON THE ASSESSEE. IN ORDER TO CLAIM THE EXEMPTION FROM PAY MENT OF INCOME TAX, THE ASSESSEE HAD TO PUT BEFORE THE INCOME TAX AUTHORITIES 4 ITA NO.1495/CHNY/2019 PROPER MATERIALS WHICH WOULD ENABLE THEM TO COME TO A CONCLUSION. (35 ITR 312 (SC)). THUS, THE AO MUST KEEP IN MIND T HAT THE ONUS OF PROVING THE EXEMPTION RESTS ON THE ASSESSEE. IF TH E AO DOES HAVE ANY EVIDENCE TO THE CONTRARY, IT IS TO BE PUT TO TH E ASSESSEE FOR HIS REBUTTAL. THE INTERNAL COMMUNICATIONS OF THE REVENU E ARE EVIDENCES FOR DRAWING AN OPINION ON POSSIBLE WRONG CLAIMS BUT THEY ARE NOT THE FINAL EVIDENCE. THIS TRIBUNAL IN THE CASE OF KANHAIYALAL & SONS (HU F) V. ITO IN I.T.A. NO.1849/CHNY/2018 DATED 06.02.2019 , HAS REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICE R FOR RECONSIDERATION. THIS TRIBUNAL HAS OBSERVED AT PARA 4 OF ITS ORDER AS UNDER:- 4. WE HEARD SHRI AR.V. SREENIVASAN, THE LD. DEPART MENTAL REPRESENTATIVE ALSO. ADMITTEDLY, THE ASSESSING OFF ICER DISALLOWED THE CLAIM OF THE ASSESSEES ON THE BASIS OF THE INFORMATION SAID TO BE RECEIVED FROM THE INVESTIGAT ION WING OF THE DEPARTMENT AT KOLKATA WITH REGARD TO INVESTMENT MADE BY THE ASSESSEES IN THE PENNY STOCK COMPANY. IT IS NOT IN DISPUTE THAT A COPY OF THE INVESTIGATION REPORT SAID TO BE RECEIVE D FROM KOLKATA WAS NOT FURNISHED TO THE ASSESSEE. MOREOVER, DETAI LS OF THE ENQUIRIES SAID TO BE MADE BY THE ASSESSING OFFICER WERE ALSO NOT FURNISHED TO THE ASSESSEES. IN THOSE CIRCUMSTANCES , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFF ICER HAS TO RECONSIDER THE ISSUE AFRESH AFTER FURNISHING THE MA TERIAL RELIED UPON BY THE ASSESSING OFFICER. ACCORDINGLY, THE OR DERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL BRING ON RECORD THE ROLE OF THE ASSESSEES IN PROMOTING THE COMPANY AND THE RELATIONSHIP OF THE ASSESSEES, IF A NY WITH THE 5 ITA NO.1495/CHNY/2019 PROMOTERS, ROLE OF THE ASSESSEES IN INFLATING THE P RICE OF SHARES, ETC. THE ASSESSING OFFICER SHALL ALSO FURNISH A CO PY OF THE INVESTIGATION REPORT SAID TO BE RECEIVED FROM THE I NVESTIGATION WING OF THE DEPARTMENT AT KOLKATA AND OTHER MATERIA LS IF ANYTHING IN HIS POSSESSION AND THEREAFTER DECIDE TH E ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEES. 4.1 FURTHER, PERUSAL OF THE ABOVE CASE SHOW TH AT IT IS SIMILAR TO THE FACTS IN THE CASE OF SHRI HEERACHAND KANUNG A, A DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL MADE, FOR AS SESSMENT YEARS 2010-11 & 2011-12 IN ITA NOS. 2786 & 2787/MDS/2017 DATED 03.05.2018. THE RELEVANT PORTIONS FROM THAT ORDER I S EXTRACTED AS UNDER :- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMI TTEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT TO BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO B E SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER O F THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE. THE M AIN 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 AL SO ALLEGEDLY SEEMS TO HAVE PROVIDED THE ASSESSEES NAM E AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STA TEMENT GIVEN BY SHRI ASHOK KUMAR KAYAN CANNOT BE THE FOUND ATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASH OK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE FOR CRO SS- EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROS S- EXAMINATION, THE STATEMENT REMAINS MERE INFORMATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMEN T. 6 ITA NO.1495/CHNY/2019 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER S HARE TOTALING INTO RS.3,00,000/-. THE ASSESSEE CLAIMS TO HAVE PAID CASH FOR THE PURCHASE OF THESE SHARES. THE PR IMARY QUESTION WOULD BE AS TO WHERE THE PURCHASE WAS DONE ? IF THE PURCHASE HAS BEEN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHA RE CERTIFICATES AND THE SHARE TRANSFER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A(3)? WA S THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF TH E ASSESSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKA TA? HOW WAS THE TRANSACTION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? W HEN WERE THE SHARES TRANSFERRED 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 WHOM DID TH E 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 ASSESSEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATES THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL, KOLKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE ASSESSEE IN GOOD FAITH HAS PURCH ASED THE SHARES OF M/S.BPL FROM A SUB-BROKER IN HIS FRIE NDS CIRCLE. WHAT IS THE TRUE NATURE OF THE TRANSACTION? FROM WH OM DID THE ASSESSEE ACTUALLY PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESSION OF THE SHARES IN ITS PHYSI CAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTI ONED THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGUL ARLY TRADING IN SHARES. IF THIS IS SO, DOES THE DEMAT A CCOUNT SHOW SUCH TRANSACTIONS BEING DONE BY THE ASSESSEE O R IS THIS THE ONLY ONE OF TRANSACTION. THUS, CLEARLY THE FAC TS REQUIRED FOR ADJUDICATING THE APPEALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SHOW THAT THE ASSESSEE HA S HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUS E 7 ITA NO.1495/CHNY/2019 ASSUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARE S OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSSESSION OF THE SHARES FOR MORE THAN 12 MONTHS HA VE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHC OMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS SUBMITTED BY THE LD.AR THAT THE DEMAT WAS DO NE ON VARIOUS DATES. THEN THE QUESTION RISES AS TO WHY T HERE IS SO MUCH OF DIFFERENCE IN THE DATES OF DEMATING WHEN 15 000 SHARES HAVE BEEN PURCHASED TOGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M/S.BPL COMPANY IS KNOWN, WHA T IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD TO THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/- TO RS.352/- IN A PERIOD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE TH E SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKE R OF THE STOCK EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WO ULD HAVE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE N OT COMING OUT OF THE ASSESSMENT ORDER NOR THE ORDER OF THE LD .CIT(A) NOR FROM THE SIDE OF THE ASSESSEE, WE ARE OF THE VI EW THAT THE ISSUES IN THIS APPEAL MUST BE RESTORED TO THE F ILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE AND WE DO SO. 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGA INST THE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEE N GIVEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVIDED TO THE ASSESSEE FOR CROSS-EXAMINATION. HO WEVER, THE ASSESSEE SHALL PROVE THE TRANSACTION OF THE LON G TERM CAPITAL GAINS IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10(38) BY PROVIDING ALL SUCH EVID ENCES AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALS O BY PRODUCING THE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, FRIEND A ND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. 8 ITA NO.1495/CHNY/2019 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE IN ITA NOS.2786 & 2787/CHNY/2017 ARE PARTLY ALLOWED FO R STATISTICAL PURPOSES. 4.2 RESPECTFULLY FOLLOWING THE ABOVE ORDERS, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE DEEM IT FIT TO REMIT THE ISSUE OF EXEMPTION IN THIS APPEAL BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION ON THE LINES INDICATED ABOVE. THEREFORE, THE AO SHA LL REQUIRE THE ASSESSEE; TO ESTABLISH WHO, WITH WHOM, HOW AND IN W HAT CIRCUMSTANCES THE IMPUGNED TRANSACTIONS WERE CARRIE D OUT ETC., TO PROVE THAT THE IMPUGNED TRANSACTIONS ARE ACTUAL, GE NUINE ETC. THE ASSESSEE SHALL COMPLY WITH THE AOS REQUIREMENTS AS PER LAW. THE AO IS ALSO FREE TO CONDUCT APPROPRIATE ENQUIRY AS D EEMED FIT. THE ASSESSING OFFICER SHALL ALSO BRING ON RECORD THE RO LE OF THE ASSESSEE IN PROMOTING THE COMPANY AND RELATIONSHIP OF THE ASSES SEE WITH OTHER PROMOTERS, ROLE OF THE ASSESSEE IN INFLATING THE PR ICE OF SHARES, ETC. AS HAD BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF KANHAIYALAL & SONS (HUF) V. ITO IN I.T.A. NO.184 9/CHNY/2018, DATED 06.02.2019 REFERRED TO SUPRA. THE AO SHALL F URNISH ADEQUATE OPPORTUNITY TO THE ASSESSEE ON THE MATERIAL ETC TO BE USED AGAINST IT AND ON APPRECIATION OF ALL THE ASPECTS, THE AO WOUL D DECIDE THE 9 ITA NO.1495/CHNY/2019 MATTER IN ACCORDANCE WITH LAW. THUS, THE ISSUES OF EXEMPTION CLAIM U/S 10(38) ARE RESTORED TO THE FILE OF THE ASSESSIN G OFFICER FOR RE- ADJUDICATION ON THE LINES INDICATED ABOVE. 5. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON THE 16 TH SEPTEMBER, 2019 AT CHENNAI. SD/- SD/- #$ /CHENNAI, %& /DATED 16 TH SEPTEMBER, 2019 RSR &' () *) /COPY TO: +, /APPELLANT 2. /RESPONDENT 3. - ( ) /CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 2 /GF ( 3 , , 3 , /' 4 (N.R.S. GANESAN) $ &5 JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER