PRAVINA NAVIN DEDHIA, MUMBAI V. CIT (A) NFAC, MUMBAI

ITA 1701/MUM/2021

AI Insights

The case revolves around an appeal by Pravina Navin Dedhia against the order of the CIT(A)/NFAC, Delhi, which upheld the additions made by the Assessing Officer (AO) under Section 68 and Section 69C of the Income Tax Act, 1961. The additions were based on the premise that the assessee had engaged in transactions involving a penny stock, M/s. PFL Infotech Ltd, which were used to introduce unaccounted income. The AO had treated the long-term capital gains (LTCG) from these transactions as undisclosed income. The Tribunal, after examining the evidence and relevant judicial precedents, concluded that the transactions were genuine and thus, the additions were unjustified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300083 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 28-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 23-09-2021
• Other Referred Cases: Sohanraj Uttamchand vs. DCIT, Jamna Devi Aggarwal vs. CIT, Mukesh Ratilal Marolia vs. CIT, Maheshchandra G Vakil vs. CIT, Sunita Khemka vs. CIT, Anil Khemka vs. CIT, CIT vs. Anupam Kapoor, Omar Salay Mohamed Sait vs. CIT, Umacharan Shaw & Brothers vs. CIT, Lalchand Bhagat Ambica Ram vs. CIT, CIT vs. Carbo Industrial Holdings Ltd., CIT vs. Prem Pal Gandhi
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAKING FURTHER
• Assessee Lawyers: MAULIK CHOKSI
• Keywords: Share purchase agreement; Set aside; Capital Gains
• Section: 147; 68; 148; 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM आयकर अपील सं/ I.T.A. No.1701/Mum/2021 (निर्धारण वर्ा / Assessment Year: 2012-13) Pravina Navin Dedhia 501, Chandak Heritage, Goraswadi, Malad (W), Mumbai-400064. बिधम/ Vs. CIT(A)/NFAC Delhi. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : ADOPD9490J (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 01/03/2023 घोषणा की तारीख /Date of Pronouncement: 30/05/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. CIT(A)/NFAC, Delhi dated 27.07.2021 for AY. 2012-13. 2. The main grievance of the assessee is against the action of the Ld. CIT(A) in upholding the addition of Rs.24,67,900/- made by the AO u/s 68 of the Income Tax Act, 1961 (hereinafter “the Act”) as well as the addition of notional commission of Rs.49,358/- (2% of the accommodation entry). 3. Brief facts are that the assessee an individual, has filed her return of income on 30.03.2014 declaring total income of Rs.1,88,350/-. Later, the case of the assessee was reopened u/s 147 of the Act on the basis of an information that the assessee has transacted in a scrip named M/s. PFL Infotech Ltd (hereinafter “M/s. PFL”) which according to revenue is a penny stock and has been used to Assessee by: Shri Maulik Choksi Revenue by: Shri Anil Gupta ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 2 facilitate introduction of her unaccounted income and having taken note that the assessee has sold these shares of M/s. PFL and received sale consideration of Rs.24,67,900/- has made an addition of Rs.24,67,900/- & commission of Rs.49,358/- to the total income. 4. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who was pleased to dismiss the same. Aggrieved by the action of the Ld. CIT(A), the assessee is before us. 5. We have heard both the parties and perused the records. We note that the assessee had filed her return of income declaring loss of Rs.1,88,350/- for AY. 2012-13 on 30.03.2014 which was later re- opened by AO u/s 147 of the Act on 30.03.2019 on the basis that he received an information from the DDIT Investigation that assessee has dealt with purchase and sale of shares of M/s. PFL which earned her bogus Long Term Capital Gain (LTCG) on sale consideration received to the tune of Rs.24,67,900/-. According to AO, the assessee has brought 10,000 shares at the cost of each share at Rs.20.32 i.e. total Rs.2,03,008/- and sold it for Rs.24,67,900/- and claimed capital gain of Rs.22,64,192/-. According to AO, he brought to the notice of assessee through show cause notice about the proposed action of treating the share of M/s. PFL as penny-stock and LTCG claim as undisclosed income and also to disallow commission of 2% on sale of shares i.e. Rs.49,358/- to obtain the same. According to the AO, even though, the assessee has submitted its reply on 13.10.2019, he found it to be satisfactory. Therefore, he made an addition of Rs.24,67,900/- u/s 68 of the Act and Rs.49,358/- u/s 69C of the Act. On appeal, the Ld. ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 3 CIT(A) confirmed the action of the AO. Before this Tribunal, assessee has filed relevant documents on the fact-in-issue, from which it is discerned that the assessee had purchased 10,000/- shares of M/s. PFL on 30.12.2009 for a consideration of Rs.2,03,708/- and sold the same in the month of April, 2011 for total consideration of Rs.24,67,900/- and claimed LTCG of Rs.22,64,192/- which has been denied to the assessee based on information from investigation wing that scrip of M/s. PFL is a penny-stock and has been used by entry operators to facilitate bogus LTCG/loss by rigging (circular trading). The assessee in order to prove its bona-fide about the transaction in question has brought to my notice that the assessee had purchased the shares through online trading platform of Bombay Stock Exchange (BSE) and produced the copy of contract of purchase of M/s. PFL shares, and a perusal of which it is discerned that assessee had purchased the shares through M/s. Rikhav Securities Ltd which was an approved stock broker; and sold through the stock exchange through the same broker. The assessee had brought these relevant facts to the notice of the AO on 10.12.2019 which fact have been acknowledged by the AO, but has not given any reason to brush it aside the same but made a bald statement saying that the “assessee’s reply are not tenable”. The Ld. CIT(A) also has given specious reason to reject the claim of assessee (LTCG) on the ground that it is beyond human probabilities that the assessee would have made such a gain within short span of sixteen (16) months. Therefore, he confirmed the action of the AO. ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 4 6. I am not able to countenance this impugned action of the AO/Ld. CIT(A) on the simple ground that the assessee had produced the following primary documents to prove the transaction which has happened online through recognized stock exchange (Bombay Stock Exchange) in the open/electronic market. The assessee has been able to prove the purchase and sale of shares of M/s. PFL and has filed the following documents as under: - Sr. No. Description Annexure Page No. 1 Copy of the purchase contract note of the appellant as on 30.12.2009 “Annexure A” 49-51 – Appeal Set 2 Copies of the contract notes of the appellant as on 20.04.2011, 21.04.2011, 25.04.2011 and 28.04.2011 “Annexure B colly” 52-63 – Appeal Set 3 Copy of the bank statement in which the appellant had received the amount “Annexure C” 64-66 – Appeal Set 7. It is further noted that assessee had received the sale consideration through banking channel. And it has been brought to my notice that similar addition made by the Department in respect of LTCG claim while trading in share of M/s. PFL Infotech has been considered and this Tribunal has upheld the claim of the LTCG (Refer Chennai Bench decision of this Tribunal in the case of Sohanraj Uttamchand, Chennai Vs. DCIT (ITA. No.1787/Chny/2017 for AY. 2014-15 order dated 28.02.2018) wherein it was held as under: - In the case of the assessee, the genuineness of the company M/s. PFL Infotech Ltd which is a third party and not under the control of the assessee and whose shares assessee had purchased and sold is the issue. Moreover, the purchase and sales of shares were made through recognized stock exchange in the open market from unknown and unconnected persons. Therefore, the ratio laid down by the Hon’ble High Court would not be strictly applicable in the case of the assessee. ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 5 8.3. The assessee has relied in the following decisions which apparently support the case of the assessee:- (i) Bombay High Court in the case of Jamna Devi Aggarwal 236 CTR 32 (2010) (ii) Bombay High Court in the case of Mukesh Ratilal Marolia (2012) 80 CCH 0407 32 ITA No.1787/CHNY/2017 (iii) Gujarat High Court in the case of Maheshchandra G Vakil (2013) 40 Taxman 326 (iv) Ahmedabad ITAT in the case of Mahesh G Vakil ITA No.3104/Ahd./2009 (v) Kolkata High Court in the case of Emerald Commercial Ltd (2002) 120 Taxman 282 (vi) Kolkata ITAT in the case of Sunita Khemka ITA No.714 to 718/Kol./2011 (vii) Kolkata ITAT in the case of Anil Khemka ITA No.901 to 905/Kol./2009 dated 28/01/2010. In all the above mentioned cases, it has been uniformly held that when the transactions are routed through banking channels and the identity of the seller and the purchasers are established and when the transactions are covered through contract notes, demat accounts which shows transfer in and out of shares then there is no necessity to doubt the genuineness of the transactions. 8.4 From the above it is apparent that the decisions relied by the Ld. Revenue Authorities will not be strictly applicable to the case of the assessee and the decisions cited by the assessee are in support of the claim of the assessee. 8.5 We do understand the genuine anxiety of the Revenue to tax the assessee due to the various unnatural happening of events, but as a Judicial body our hands are tied due to the lack of material evidence against the activities of the assessee and we cannot step into the shoes of the Revenue by making further investigations and enquiries to tie up the loose ends left out by the Revenue. From the materials produced before us there is nothing on record to establish that the transactions of purchase and sale of shares made by the assessee are dubious other than the fact that the share prices of M/s. PFL Infotech Ltd., ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 6 rose substantially without sound backing and the statements of few persons such as Shri Aspi Bamanji Vairava, Shri Pankaj Kumar K Shah & Shri Dipti P Shah. At the same time, it should be kept in mind that stock prices may raise due to certain hidden factors which may be not known to the public at large even with respect to blue chip companies. Hence conclusion cannot be bluntly made on the basis of surmises and conjectures in the case of any assessee when certain other material factors are in favour of the assessee. 8.6. The Hon’ble Punjab & Haryana High Court in the case CIT vs. Anupam Kapoor reported in 299 ITR 179 in a somewhat similar situation has categorically stated that no presumption could be drawn by the Assessing Officer merely on surmises and conjectures. The gist of the decision and case is extracted herein below for reference: - “The assessee’s case was reopened on receipt of an intimation from the Deputy Director of Income-tax (Investigation) stating that the long-term capital gain declared by the assessee was false and the transaction was not genuine. In response to a notice under section 148 of the Income-tax Act, 1961, the assessee submitted his reply and furnished evidence in support of his claim of long- term capital gain. The Assessing Officer held that the assessee failed to lead evidence to support his claim of long-term capital gain and considered the amount of Rs.1,74,552 as unexplained credit and it was added in the income of the assessee. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer had not discharged his onus and there was no material or evidence with the Assessing Officer to come to the conclusion that the transaction shown by the assessee was a bogus transaction. The Commissioner (Appeals) took the view that if a company was not available at the given address, it could not conclusively prove that the company was non-existent. The Tribunal took into consideration that the Assessing Officer had not dealt with all the documents placed before him and had simply presumed that the transaction was bogus and held that the purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of the share certificates and the quotation of shares on the date of purchase and sale were sufficient material ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 7 to show that the transaction was not bogus but a genuine transaction. On appeal: Held, dismissing the appeal, that there was no material before the Assessing Officer, which could have led to a conclusion that the transaction was a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the Assessing Officer merely on surmises and conjectures. The Tribunal took into consideration that it was only on the basis of a presumption that the Assessing Officer concluded that the assessee had paid cash and purchased the cheque. In the absence of any cogent material in this regard, having been placed on record, the Assessing Officer could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the Assessing Officer. Therefore, the Assessing Officer could not have added the income, which was rightly deleted by the Commissioner (Appeals) as well as the Tribunal.” 8.7. In the case Omar Salay Mohamed Sait vs. CIT reported in 37 ITR 151, the Hon’ble Apex Court categorically held that “on no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises: nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings even though on questions of fact will be liable to be set aside by the court.” 8.8 In the case Umacharan Shaw & Brothers vs. CIT reported in 37 ITR 271, the Hon’ble Apex Court held that where conclusion arrived at was due to suspicion which could not take the place of proof but based on many surmises and conjectures reliance cannot be placed. 8.9. Similar ratio was laid down by the Hon’ble Apex Court in the case Lalchand Bhagat Ambica Ram vs. CIT reported in 37 ITR 288 (SC). 8.10 In the case CIT vs. Carbo Industrial Holdings Ltd., reported in 224 ITR 422, the Hon’ble Calcutta High Court has held that when purchase and sale of shares are effected through share brokers, their particulars are furnished and the payment is made by account payee cheque the transaction cannot be ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 8 doubted just because the brokers fail to appear before the Revenue even after issue of summons. Similar view was upheld by the Hon’ble Calcutta High Court in the case CIT vs. Emerald Commercial Ltd. & another reported in 250 ITR 539. 8.11 In the case CIT vs. Prem Pal Gandhi, the Hon’ble Punjab & Haryana High Court held vide its recent order dated 18.01.2018 has held that:- “the fact that the appreciation in the value of the shares is high does not justify the transactions being treated as fictitious and the capital gains being assessed as undisclosed income if (a) the shares are traded on the Stock Exchange, (b) the payments and receipts are routed through the bank, (c) there is no evidence to indicate it is a closely held company and (d) the trading on the Stock Exchange was manipulated in any manner.” 8.12. Based on the above referred cases decided by the higher judiciary and discussions we hereby direct the Ld.AO to delete the addition made by invoking Section 68 of the Act and also to grant deduction U/s.10(38) of the Act by treating the gain arising out of the sale of shares as Long Term Capital Gain. 8.13 We also make it clear that we have arrived at this decision in the case of the assessee alone based on the materials and facts presented before us and therefore it does not have any binding precedent value in similar other cases. We also make it clear that we have not arrived at any conclusion with respect to the standing/activities etc., of M/s. PFL Infotech Ltd., because we do not have sufficient materials to comment on the same. 9. In the result the appeal of the assessee is allowed. 8. Respectfully following the decision of the Co-ordinate Bench of this Tribunal in the case of Sohanraj Uttamchand Vs. DCIT (supra) in which it was held that since the transaction of scrips of M/s. PFL Infotech Ltd took place in recognized stock-exchange which is not under the control of assessee; [viz the shares were purchased and sold in Bombay Stock Exchange in the open market from unknown and ITA No.1701/Mum/2021 A.Y. 2012-13 Pravina Navin Dedhia 9 unconnected persons;] and the transactions are supported by contract notes and consideration has passed through the banking channel, merely based on the abnormal ups and down in the share market of this scrip cannot be a ground to disallow the LTCG claim of the assessee. Therefore, the impugned action of the Ld. CIT(A) is set aside and the addition made by the AO u/s 68 and 69C of the Act are directed to be deleted. 9. In the result, all the appeals of the assessee is allowed. Order pronounced in the open court on this 30/05/2023. Sd/- (ABY T. VARKEY) JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 30/05/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.