Kamal Kishore Soni , Hyderabad V. Income Tax Officer, Ward-7(3), Hyderabad

ITA 1680/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6626 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 08-04-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 15-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KANIKA AGARWAL
• Assessee Lawyers: BUPESH KUMAR DAND
• Keywords: Unexplained investment; Capital Gains

Judgement Text

ITA NO 1680 OF 2019 KAMAL KISHORE SONI HYDERABAD PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.1680/HYD/2019 ASSESSMENT YEAR: 2011-12 SHRI KAMAL KISHORE SONI HYDERABAD PAN:ADVPS0004Q VS. INCOME TAX OFFICER WARD 7(3) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI BUPESH KUMAR DAND REVENUE BY : SMT.KANIKA AGARWAL, DR DATE OF HEARING: 08/04/2021 DATE OF PRONOUNCEMENT: 15/04/2021 ORDER THIS IS ASSESSEES APPEAL FOR THE A.Y 2011-12 AGAIN ST THE ORDER OF THE CIT (A)-3, HYDERABAD, DATED 19.09 .2019. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, DERIVING INCOME (I) FROM CAPITAL GAINS FROM TRADING IN SHARES; AND (II) INCOME FROM OTHER SOURCES, FILED H IS RETURN OF INCOME FOR THE A.Y 2011-12 ADMITTING TOTAL INCOME O F RS.1,61,414/-. THEREAFTER, THE ASSESSING OFFICER RE CEIVED INFORMATION FROM THE DY. DIRECTOR OF INCOME TAX (IN V.) UNIT-3(2) MUMBAI, VIDE LETTER DATED 16.03.2018 THAT THE ASSES SEE HAD TRADED IN PENNY SCRIP M/S. ROCKON FINTECH (EARLIER KNOWN AS INSUTECH INDIA) WITH THE SALE VALUE OF THE SHARES A T RS.2,78,753/-. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HAD REA SON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT WITHIN THE MEANING OF SECTION 147(B) OF THE I.T. ACT. HE THEREFORE, INITIATED RE-ASSESSMENT PROCEEDINGS BY ISSUANCE OF A NOTICE U/S ITA NO 1680 OF 2019 KAMAL KISHORE SONI HYDERABAD PAGE 2 OF 5 148 AND CALLED FOR CERTAIN DETAILS. THE ASSESSING O FFICER OBSERVED THAT THE DIRECTOR (INV.) KOLKATA CARRIED OUT A COUN TRY WIDE INVESTIGATION TO UNEARTH THE ORGANIZED RACKET OF GE NERATING BOGUS ENTRIES OF LONG TERM CAPITAL GAINS (LTCG) WHICH IS EXEMPT FROM TAX AND THE MODUS OPERANDI ADOPTED BY THE OPERATORS WAS TO MAKE THE BENEFICIARY BUY SOME SHARES OF A PRE-DETER MINED PENNY STOCK COMPANY CONTROLLED BY THEM AND THAT THESE SHA RES ARE TRANSFERRED TO THE BENEFICIARY AT A VERY NOMINAL PR ICE AND SUBSEQUENTLY SOLD FOR HIGH PRICE WHEREBY THE BENEFI CIARY CLAIMS THE LTCG ARISING THEREFROM AS EXEMPT FROM TAX. THE ASSESSING OFFICER OBSERVED THAT THE SHARE PRICE PATTERN OF RO CKON FINTECH STARTED ESCALATING DURING THE FINANCIAL YEAR 2010-1 1 AND THERE WAS A SHARP FALL IN FINANCIAL YEAR 2011-12. THEREFO RE, HE WAS OF THE OPINION THAT THIS A PENNY STOCK COMPANY AND THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF INVESTMENT IN TH E SHARES OF THIS COMPANY. THE ASSESSING OFFICER OBSERVED THAT T HE SOURCES OF INVESTMENT FOR PURCHASING THE SHARES HAVE NOT BEEN EXPLAINED BY THE ASSESSEE. HE THEREFORE, BROUGHT THE SUM OF RS.2 ,35,644/- TO TAX AS UNEXPLAINED INVESTMENT IN PENNY STOCK. AGGRI EVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WH O CONFIRMED THE ORDER OF THE ASSESSING OFFICER AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER PASSED BY THE COMMISSIONER OF 1NCOME TAX (APPEALS) IS ERRONEOUS IN LAW AND ON FACTS OF T HE CASE. 2. (A) THE LEARNED CIT (APPEALS) ERRED IN SUSTAININ G THE ADDITION OF RS.2,35,644/. WITHOUT APPRECIATING THE FACT THAT NO SUCH INVESTMENT WAS MADE IN THE ALLEGE D PENNY STOCK. (B) THE LEARNED COMMISSIONER OF 1NCOME TAX (APPEALS ) ERRED IN SUSTAINING THE SAID ADDITION OF RS.2,35,64 4/. TOWARDS UNEXPLAINED 1NVESTMENT IN THE SO CALLED ITA NO 1680 OF 2019 KAMAL KISHORE SONI HYDERABAD PAGE 3 OF 5 PENNY STOCK WITHOUT GOING THROUGH THE WRITTEN SUBMISSIONS MADE BEFORE HIM. (C) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN SUSTAINING THE ADDITION OF RS.2,35,644/. WITHOUT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HAD SHOW CAUSED THE FIGURE AT RS.2,78,753/. AS INFORMATION OBTAINED FROM INVESTIGATION WING. 3. ANY OTHER GROUND/S THAT MAY BE URGED AT THE TIME OF HEARING. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS A TRADER IN SHARES AND HE UTILIZES THE SALE CONSIDERATION OF ONE SHARE FOR PURCHASE OF ANOTHER SHARE. HE SUBMITTED THAT IT IS ONLY THE SHARES OF ROCKON FINT ECH WHICH HAS BEEN CONSIDERED AS PENNY STOCK AND THE ASSESSING OF FICER HAS NOT DOUBTED ANY OTHER TRANSACTION. HE SUBMITTED THAT TH E ASSESSEE HAD DULY ADMITTED OTHER STCG AND LTCG FROM THE SALE OF SHARES AND HAS NEVER CLAIMED IT AS EXEMPT FROM TAX. THUS, HE SUBMITTED THAT THE ADDITION OF RS.2,35,644/- AS UNEXPLAINED I NVESTMENT IN PENNY STOCK IS NOT WARRANTED. 4. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, I FIND THAT THE ASSESSEE HAS MADE THE IN VESTMENT IN THE SHARES OF ROCKON FINTECH IN THE YEAR 2008-09 WHEREA S THE REPORT OF THE INVESTIGATION WING IS DATED 16.3.2018. THERE FORE, THE ARGUMENT OF THE ASSESSEES COUNSEL THAT THE ASSESSE E COULD NOT HAVE KNOWN THAT ROCKON FINTECH IS A PENNY STOCK COM PANY IN THE YEAR OF PURCHASE OF SHARES IS QUITE ACCEPTABLE. IT IS ALSO SEEN FROM THE PAPER BOOK FILED BY THE ASSESSEE THAT THE ASSES SEE HAS BEEN ENGAGED IN THE TRADING OF SHARES OF A NUMBER OF COM PANIES AND ITA NO 1680 OF 2019 KAMAL KISHORE SONI HYDERABAD PAGE 4 OF 5 ROCKON FINTECH IS NOT ONLY ONE COMPANY WHOSE SHARES THE ASSESSEE HAS TRADED IN. FURTHER, IT IS ALSO SEEN TH AT THE ASSESSEE HAS SOLD ALL OF HIS SHARES AND HAS INCURRED LOSS OF RS.506/- ON THE SALE OF SHARES OF M/S. ROCKON FINTECH WHILE SHORT T ERM CAPITAL GAIN OF RS.20,770/- WAS ADMITTED IN THE I.T. RETURN OF THE ASSESSEE ALONG WITH OTHER INCOME. THUS, ACCORDING T O HIM, EVEN IF THERE HAS TO BE ANY DISALLOWANCE, IT CAN BE OF RS.5 06/- ONLY AND NOT THE ENTIRE VALUE OF PURCHASE OF SHARES OF THE S AID COMPANY AT RS.2,35,644/-. I AM CONVINCED WITH THE ARGUMENT OF THE ASSESSEE THAT THE SHARES WERE PURCHASED AS LONG AS BACK IN T HE YEAR 2008 AND SOLD IMMEDIATELY THEREAFTER AND THE ASSESSEE HA S INCURRED A LOSS AND ONLY SUCH AMOUNT CAN BE DISALLOWED. ON GOI NG THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE CI T (A), I FIND THAT THAT THE MAIN REASON FOR THE DISALLOWANCE IS THAT T HE ROCKON FINTECH IS A PENNY STOCK COMPANY AND THE ASSESSEE H AS INVESTED IN PENNY STOCK. NONE OF THE AUTHORITIES BELOW HAVE VERIFIED THE SOURCES FOR THE INVESTMENT. FROM THE DETAILS FILED BY THE ASSESSEE BEFORE THIS TRIBUNAL, IT APPEARS, THAT THE ASSESSEE HAS USED THE SALE CONSIDERATION (AFTER SALE OF OTHER SHARES) FOR PURCHASE OF SHARES OF ROCKON FINTECH AND IMMEDIATELY THEREAFTER , ON SALE OF THE SAID SHARES, THE ASSESSEE HAS UTILIZED THE SAID SALE CONSIDERATION FOR PURCHASE OF OTHER SHARES. FURTHER , THE ASSESSEE HAS NOT MADE ANY GAIN FROM SALE OF THOSE SHARES, NO R HAS HE CLAIMED ANY EXEMPTION U/S 10(38) OF THE ACT. THEREF ORE, I AM CONVINCED THAT THE INTENTION OF THE ASSESSEE WAS NO T TO MAKE ANY GAIN OUT OF PURCHASE AND SALE OF SHARES OF PENNY ST OCK COMPANY. THUS, NO DISALLOWANCE CAN BE MADE, LEAVE ALONE THE DISALLOWANCE OF VALUE OF SHARES INVESTED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ITA NO 1680 OF 2019 KAMAL KISHORE SONI HYDERABAD PAGE 5 OF 5 ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH APRIL, 2021. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 15 TH APRIL, 2021. VINODAN/SPS COPY TO: S.NO ADDRESSES 1 SRI KAMAL KISHORE SONI, 15-2-134 MAJARAKGUNJ, HYD ERABAD 2 INCOME TAX OFFICER WARD 7(3) HYDERABAD 3 CIT (A) - 3, HYDERABAD 4 PR. CIT - 3, HYDERABAD 5 DR, ITAT HYDERABAD BENCHES 6 GUARD FILE BY ORDER