Assistant Commissioner of Income-tax, Circle - 3, Aurangabad V. Somnath Vaijnath Sakre, Aurangabad

ITA 1559/PUN/2019

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had deleted the addition of Rs. 7,84,00,000 made by the Assessing Officer (AO) as selling expenses while computing the long-term capital gain on the transfer/sale of shares. The assessee, Shri Somnath Vaijnath Sakre, had claimed to have made payments to M/s. Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT Bar Pvt. Ltd. as compensation for not completing share transfer agreements, which the AO disallowed. The CIT(A) reversed this decision, leading to the Revenue's appeal. The Tribunal found that the CIT(A) did not adequately address the genuineness of the transactions under suspicious circumstances, necessitating a re-examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137340 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2023
• Appeal Filed By: Department
• Order Result: AllowedAllowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 02-10-2019
• Other Referred Cases: Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Accommodation entries
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B” : PUNE BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA.No.1559/PUN./2019 Assessment Year 2013-14 The ACIT, Circle-3, LIC Building, 2 nd Floor, N-5, CIDCO, Aurangabad. PIN 431 003. vs. Shri Somnath Vaijnath Sakre, 167, Shree Prabhu, N-3, Opp. Power House, CIDCO, Aurangabad. PIN – 431 003. PAN ALNPS6479B (Appellant) (Respondent) For Revenue : Shri B. Koteswara Rao For Assessee : Shri Girish Ladda Date of Hearing : 10.01.2023 Date of Pronouncement : 23.01.2023 ORDER PER SATBEER SINGH GODARA, J.M. This Revenue’s appeal for assessment year 2013- 2014, arises against the CIT(A)-2, Aurangabad’s order dated 02.07.2019, passed in case No.ABD/CIT(A)-2/177/2018-19 dated 08.01.2019, involving proceedings under Section 143(3) r.w.s. 263 of the Income Tax Act, 1961 (in short “the Act”). Heard both the parties. Case file perused. 2. The Revenue raises the following substantive grounds in the instant appeal : 1. “The Ld. CIT(A) erred in both on facts and in law in passing the order. 2 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 2. The Ld. CIT(A) erred in directing the AO to delete the addition of Rs. 7,84,00,000/¬made by disallowing the deduction claimed by the assessee as selling expenses while computing the long term capital gain on transfer /sale of shares. 3. The Ld. CIT(A) erred in ignoring the fact that the assessee cancelled the agreement dated 02/07/2012 for sale of shares entered in to with Nilesh Steel and Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd. and agreed to pay consideration of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- to above two parties respectively for breach of contract entered in to with these parties without paying any stamp duty and these parties instead of going to court for settlement of dispute objected the sale of shares to KSL Holding Pvt. Ltd. and finally agreed to execute cancellation deed, which is a colourable device to minimize the tax liability. 4. The Ld. CIT(A) erred in ignoring the fact that the as per profit & loss account of Nilesh Steel & Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd. for the AY 2013-14, the profit before tax (including the profit on sale of rights in shares of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- respectively) is Rs. 9,18,636/- and Rs. 1,35,26,542/-. There is loss excluding these amounts in both the cases. From this it is evident that these companies have used the cancellation agreement as a colourable device to minimize the tax liability and hence the 3 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. deduction of Rs. 7,84,00,000/¬claimed by assessee as selling expenses while computing the long term capital gain on transfer/sell of shares is not in order. 5. The order of CIT(A) be vacated and the order of the AO be restored. 6. The appellant craves leave to add, amend or alter any grounds of appeal.” 3. It next transpires that the relevant facts regarding the instant sole issue of correctness of the CIT(A)'s action deleting the assessee’s selling expenditure disallowance of Rs.7,84,00,000/- in a very narrow compass. We find from a perusal of the Assessing Officer’s sec.143(3) r.w.s.263 assessment dated 31.12.2018 that the impugned sum pertains to the assessee’s payments made to the twin entities M/s. Nilesh Steel & Alloys Pvt. Ltd., and M/s. Dhanlaxmi TMT Bar Pvt. Ltd., with whom it had claimed to have executed agreements to transfer stake hold in M/s. Lord Ganesh Minerals Pvt. Ltd., in F.Y. 2012-13, dated 07.05.2012 and 09.04.2012, respectively. The assessee’s case all along was that since he could not complete the said transaction owing to management issues at his own level, he had transferred the very stake to M/s. KSL Holdings Pvt. Ltd., for Rs.21,87,50,000/- and thereafter, he chose to pay the impugned sum as agreed compensation to the foregoing twin 4 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. entities. The Assessing Officer rejected the assessee’s case on various counts and disallowed his claim of Rs.7.84 crores during the course of assessment which stands reversed in the CIT(A)'s order under challenge. 4. Learned CIT-DR vehemently argued during the course of hearing that the CIT(A)'s herein has erred in law and on facts in deleting the impugned addition despite the fact that that it is a clearcut instance of the assessee having availed/given accommodation entries of bogus compensation to the foregoing twin entities. Mr. Koteswara Rao sought to invoke Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) and CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) that this tribunal ought to examine facts of the instant case in light of the human probabilities after removing all blinkers. He further stressed the point that assessee had derived his so-called higher consideration of Rs.21,87,50,000/- followed by his compensation claim in issue of Rs.7,84,00,000/-, within a short span of less than two months counted from the former agreement with M/s. Nilesh Steel & Alloys Pvt. Ltd., dated 07.05.2012, which itself raises a serious question-mark on the entire scheme herein. 5. The assessee has placed strong reliance on the CIT(A)'s detailed discussion deleting the impugned addition as under : 5 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 6 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 7 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 8 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 9 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 10 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 11 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 12 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. 6. We have given our thoughtful consideration to the foregoing rival submissions and perused the lower authorities’ respective findings. Suffice to say, it emerges from the learned CIT(A)'s detailed discussion that he has given much a weightage to the search action dated 02.05.2013 involving the recipient entities followed by the post-search enquiries and assessment in their respective cases to observe that the same had not yielded any incriminating material so far as the impugned claim of Rs.7,84,00,000/- is concerned. All this constrains us to observe that the CIT(A) ought to have independently examined the genuineness of the assessee’s impugned claim in light of the above prima facie suspicious circumstances rather than discussing the search action in case of the twin recipient companies wherein the instant issue neither emanated from the alleged incriminating material nor there was any dispute to the said limited extent. Faced with this situation, we deem it appropriate that the CIT(A) needs to re-examine this sole issue independently vis-à-vis genuineness of the assessee’s claim in the given facts and circumstances 13 ITA.No.1559/PUN./2019 Shri Somnath Vaijnath Sakre, Aurangabad. afresh, preferably within three effective opportunities of hearing, as per law. The Revenue’s sole substantive ground succeeds for statistical purposes in very terms. We order accordingly. 7. No other ground or argument has been raised before us. 8. This Revenue’s appeal is allowed for statistical purposes in the above terms. Order pronounced in the open Court on 23.01.2023. Sd/- Sd/- [DR. DIPAK P. RIPOTE] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 23 rd January, 2023 VBP/- Copy to 1. The appellant 2. The respondent 3. The Ld. CIT(A) concerned. 4. The CIT concerned 5. D.R. ITAT, Pune “B” Bench, Pune 6. Guard File. //By Order// Assistant Registrar, ITAT, Pune Benches Pune.