RAJ KISHORE HUF, MUMBAI V. I.T.O. WARD 31(3)(3), MUMBAI

ITA 1621/MUM/2023

AI Insights

The case revolves around the appeal by Raj Kishore HUF against the order of the Commissioner of Income Tax (Appeals) which upheld the addition of Rs. 3,15,204 as income from bogus long-term capital gains under section 10(38) of the Income Tax Act, 1961. The Assessee had claimed these gains from the sale of shares in three companies, which were categorized as penny stocks. The Assessing Officer (AO) disallowed the claim based on findings from an investigation into these stocks, suggesting manipulation and tax evasion. However, the Tribunal, referencing a similar case by the Hon'ble High Court, found no substantial evidence of wrongdoing by the Assessee, leading to the allowance of the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300138 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-08-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 09-05-2023
• Other Referred Cases: SEBI Vs Rakhi Traders (P) Ltd, PCIT-31, Mumbai Vs. Indra Indravadan Jain HUF
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA KUMAR MEENA
• Assessee Lawyers: FILLING ITS RETURN OF INCOME ALSO
• Keywords: Penny stocks
• Section: 131; 68; 133(6); 143(1); 250; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, AM & SHRI N. K. CHOUDHRY, JM I.T.A. No. 1621/Mum/2023 Assessment Year: 2014-15) Raj Kishore HUF Flat No. 21, 2 nd Floor, Malhar Tower, Film City Road, Goregaon (E) Mumbai- 400063. PAN No. AACHR1172G Vs. ITO, Ward- 31(3)(3), Kautilya Bhavan, Bandra Kurla Complex, Mumbai- 400051 Appellant) : Respondent) Appellant/Assessee by : Shri Prakash Jhunjhunwala Respondent/Department by : Shri Surendra Kumar Meena Date of Hearing : 17.08.2023 Date of Pronouncement : 30.08.2023 O R D E R Per N. K. Choudhry, JM: The Assessee/Appellant herein has preferred this appeal against the order dated 21.03.2023 impugned herein passed by Ld. Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre, Delhi {in short ‘Ld. Commissioner’} under section 250 of the Income Tax Act 1961 (in short ‘the Act’). 2. In the instant case, the Assessee by filling its return of income also claimed the Long Term Capital Gain (in short LTCG') of Rs. 10,30,166/- as exempt under section 10(38) of the Act. 2 ITA No. 1621/M/223 Raj Kishore HUF 2.1 The return filed by the Assessee was processed under section 143(1) of the Act on 28.04.2015 and income shown therein was accepted as correct. 2.2 Subsequently the case of the Assessee was selected for scrutiny on the basis of investigation carried out in 84 penny stocks companies including the companies of whom the Assessee had purchased the shares. The AO observed that data obtained from various sources was thoroughly verified and analysis was done as per share market fundamentals and after analysis and due examination of source, it was found that LTCG of Rs. 2,06,387/- from three scrips i.e. (i) M/s Alpha Graphic India Ltd., (ii) Blazon Marbles Ltd. and (iii) M/s Cressanda Solutions Ltd. so shown in the return were bogus arrangements/method applied by the Assessee in connivance with operators to evade tax. 2.3 The AO After making analysis of three companies also recorded the statement dated 15.12.2016 of the Assessee on oath, under section 131 of the Act, wherein the Assessee claimed that being HUF has been engaged in share trading since a long time and purchased the shares of the above mentioned companies through online trading platform provided by the brokers and has not purchased /acquired any share through preferential allotment in a listed or unlisted company. The HUF is a bonafide investor and had made investment purely on the basis of study and research and had no link with any promoter or operator. The Assessee in support of its case also produced details reflecting the extensive research done by it regarding the companies' financials, share allotment, price movement and share movements. The Assessee also stated that these exercises were carried out in the year 2011 itself. 3 ITA No. 1621/M/223 Raj Kishore HUF 2.4 Though statement of the Assessee and details produced were considered by the AO, however, the same were not found acceptable on the ground that notices under section 133(6) of the Act were issued to BSE and Assessee's brokers i.e. (1) Motilal Oswal Securities Ltd. (2) M/s Bonanza Portfolio Ltd. & (3) M/s Lallubhai Ranchhoddas Share Broker, however, information from BSE and M/s Lallubhai Ranchhoddas Share Broker could not be received. Further, the AO by considering "the mode of acquisition of the share at an average price of Rs. 1795/- on which the Assessee has purchased the share from the companies, when their paid-up value was very minimal, the findings of the Investigation Wing, Mumbai and Kolkata with regard to the rigging of price and routing the cash/shares to arrive at a tax free capital gain, financial analysis of the penny stock companies, order of the SEBI, cash trail in the Accounts of the entry provider" held that the facts and circumstances of the case as recorded above clearly suggest that the Revenue cannot take for such make belief transaction as presented by the Assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre- meditated series of steps taken by the Assessee, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. The AO ultimately disallowed the claim of the Assessee to the tune of Rs. 3,15,204/- under section 10(38) of the Act qua sale proceeds on sale of shares and added back the same to the taxable income of the Assessee. 3. The Assessee being aggrieved challenged the said addition, before the Ld. Commissioner, who by impugned order affirmed the same by concluding as under: "5.1 I have gone through the Assessment Order and submissions of the appellant. The learned AO carried addition of Rs.3,15,204/- by reversing exempted long term capital gain u/s 10(38) of 1.T. Act.. The appellant had sold three shares named as Alpha Graphi, Blazon Marvels Ltd. And 4 ITA No. 1621/M/223 Raj Kishore HUF Cressanda the same were found to be penny stock. The learned AO contented that the underlined companies were bogus and without any substance and he observed that there is sudden surge in the volume traded and price is artificially rigged for these shares. The action learned AO is based on Investigation carried out by Kolkata Investigation Directorate on 84 penny stocks. These shares sold by appellant falls under such investigation. In the submissions the appellant had claimed that the contentions are genuine. However, it failed to refute the contentions raised by learned AO i.e., reason for sudden increase in trade volumes, unusual rise in price, findings of investigation wing, justification against order of SEBI wherein artificial methods are adopted for manipulating the prices, inadequate financial health of underlined company. The reliance is placed on following judicial pronouncement The Hon'ble Apex Court in Civil Appeal No.1969 of 2011 in the case of SEBI Vs Rakhi Traders (P) Ltd (with Civil Appeal No.3174-3177 of 2011 and Civil Appeal No.3180 of 2011) vide its order dated 08.02.18 observed as follows: "considering the reversal transaction, quantum price and time and sale, parties being persistent in number of such huge transaction with huge price variations, it will be too naive to hold that the transactions are through screen based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals as per the Board's Circular. The impugned transaction are manipulative deceptive device to create desired loss and/as profit. Such synchronized trading is violative of transparent norms of trading in securities.... 5.2 In view of the above I am of the considerate view that the addition carried out by learned AO is correct and is upheld. Accordingly, appeal of the appellant is dismissed." 4. We have given thoughtful consideration to the orders passed by the authorities below and the rival claims made by the parties. It is not in controversy that the Assessee is a regular investor in shares and not only earned the STCG but also earned LTCG to the tune of Rs. 2,06,385/- (Rs. 1,19,304/+32,469/- + 54,613/-). It is a fact the Assessee has made the transactions of purchase and sale through online platform of BSE in the year 2012 and received the shares of three companies i.e. (i) M/s Alpha Graphic India Ltd., (ii) Blazon Marbles Ltd. and (iii) M/s Cressanda Solutions Ltd. 5 ITA No. 1621/M/223 Raj Kishore HUF (supra) in Demat Accounts wherein the same remained for a time 19 to 20 months, 14 months and 13 months respectively. It is not the case of the Department as well that there is a huge hike in the purchase and sale of the shares. Infact the Assessee purchased the shares of said companies @ 14.45, 16 and Rs. 138 and sold the same respectively on a consideration of Rs. 43, 35 and 502 per share, which goes to show that the increase in price was approximately three times only. The Assessee in support of its claim also produced before the AO as claimed, the contract-cum-bills, ledger of stock broker, global report, Demat statement, rate publication, holding statement, assessment order for AY 2011-12 allowing penny stock transaction etc.. The Assessee in the statement recorded under section 131 on dated 15.12.2016 also clearly admitted that it is dealing in purchase and sales of shares since long time. It is also the fact as it appears from the orders passed by the authorities below that there is no order of SEBI either against the Assessee or the brokers through whom the Assessee had purchased the share. Even otherwise there are no allegations of rigging against the Assessee or its brokers. Hence, on the aforesaid analysis, in our considered view, the instant case is squarely covered by the judgment of the Hon'ble Jurisdictional High Court in the case of PCIT-31, Mumbai Vs. Indra Indravadan Jain HUF (ITA No. 454 of 2018 decided on 12.07.2023, wherein the Hon'ble High Court almost on the similar circumstances, affirmed the deletion of the identical addition by holding as under: "4. The A.O. did not accept respondent's claim of long term capital gain and added the same in respondent's income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case 6 ITA No. 1621/M/223 Raj Kishore HUF of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT(A) also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFI. The CITIA] came to the conclusion that respondent brought 3000 shares of RFI, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal. 5. We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises." 7 ITA No. 1621/M/223 Raj Kishore HUF 5. On the aforesaid analyzations and respectfully following the dictum laid down by the Hon'ble High Court, we are inclined to delete the addition under consideration; hence, the same is deleted. 6. In the result, appeal filed by the Assessee stands allowed Order pronounced in the open court on 30-08-2023. Sd/- Sd/- (B.R. BASKARAN) (N. K. CHOUDHRY) Accountant Member Judicial Member Dated: 30/08/2023 SK, Sr.PS. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai