MR. VIKRAM DUGHAR, CHENNAI V. ITO NON CORPORATE WARD 2 (2), CHENNAI

ITA 1741/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2090 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 22-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G ASHOKAPATHY
• Keywords: Share purchase agreement; Principle of natural justice
• Section: 133A; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO. 1741/CHNY/2018 / ASSESSMENT YEAR : 2014-2015. SHRI. VIKRAM DUGHAR, NO.07, HINDI PRACHAR SABHA STREET, CHENNAI 600 017. [PAN AHQPP 5914R] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 2(2) CHENNAI. ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. G. ASHOKAPATHY, ADVOCATE /RESPONDENT BY : SHRI. AR.V. SREENIVASAN, JCIT. /DATE OF HEARING : 13-11-2018 ! /DATE OF PRONOUNCEMENT : 13-11-2018 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAI NST AN ORDER DATED 16.04.2018 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI, IT IS AGGRIEVED ON DENIAL OF EXEMPTION CL AIMED BY IT U/S.10(38) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON THE ITA NO.1741 /CHNY/2018. :- 2 -: LONG TERM CAPITAL GAINS OF E8,74,250/- ON SALE OF C ERTAIN SHARES, AND DEEMING THE CONSIDERATION OF E8,76,750/- RECEIVED O N SUCH SALE AS CASH CREDIT UNDER SECTION 68 OF THE ACT. 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURI NG THE RELEVANT PREVIOUS YEAR ASSESSEE HAD RECEIVED CONSID ERATION OF E8,76,750/- ON SALE OF 25,000 EQUITY SHARES OF M/S . ESSAR (INDIA) LIMITED. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD ORIGINALLY PURCHASED 25000 SHARES OF THE SAID COMPA NY ON 25.10.2010. FURTHER, AS PER THE LD. AUTHORISED REPRESENTATIVE SUCH SHARES HAVING FACE VALUE OF E10/- EACH, WAS SPLIT BY THE SAID CO MPANY INTO SHARES OF FACE VALUE E1/- EACH, RESULTING IN ASSESSEES HOLDI NG GOING UPTO 2,50,000 SHARES. OUT OF THESE, AS PER THE LD. AUTH ORISED REPRESENTATIVE, ASSESSEE HAD EFFECTED AN ONLINE SAL E OF 25,000 SHARES ON 14.08.2013, FOR A CONSIDERATION OF E8,76,750/-, THROUGH A REGISTERED SHARE BROKER CALLED M/S.LODHA SECURITIES LTD. SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT THE GAIN S OF E8,74,250/- ARISING FROM SALE OF THESE SHARES, WHICH WERE HELD FOR MORE THAN TWELVE MONTHS, WAS NOT ALLOWED EXEMPTION U/S.10(3 8) OF THE ACT. ACCORDING TO HIM, WHOLE OF THE CONSIDERATION RECEIV ED ON SALE WAS TREATED AS INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES. AS PER THE LD. AUTHORISED REPRESENTATIVE, LOWER AUTHO RITIES DISBELIEVED ITA NO.1741 /CHNY/2018. :- 3 -: THE PURCHASE AND SALE OF THE SHARES OF M/S. ESSAR I NDIA LTD RELYING ON THE STATEMENTS OF SHRI. MUKESH AGARWAL AND SHRI. HA RSHVARDHAN KAYAN, AND ALSO THE INVESTIGATION DONE BY THE REVE NUE IN KOLKATA. ACCORDING TO LD. AUTHORISED REPRESENTATIVE, LOWER A UTHORITIES ALSO BELIEVED THE STATEMENTS GIVEN BY VARIOUS PERSONS PU RSUANT TO SURVEYS UNDER SECTION 133A OF THE ACT CONDUCTED IN THE PREM ISES OF VARIOUS STOCK BROKERS. LTD. FURTHER, ACCORDING TO LD. AUT HORISED REPRESENTATIVE, RECORDS IMPOUNDED DURING THESE SURV EYS WERE ALSO CONSIDERED BY THE LD. ASSESSING OFFICER. HOWEVER , AS PER THE LD. AUTHORISED REPRESENTATIVE, NONE OF THESE STATEMENTS AND RECORDS WERE GIVEN TO THE ASSESSEE NOR SUCH PERSONS MADE AVAILAB LE FOR A CROSS EXAMINATION. CONTENTION OF THE LD. AUTHORISED REPR ESENTATIVE WAS THAT STATEMENTS RECORDED BEHIND THE BACK OF THE ASSESSEE COULD NOT HAVE BEEN RELIED ON BY THE REVENUE FOR FASTENING A TAX L IABILITY ON THE ASSESSEE. AS PER THE LD. AUTHORISED REPRESENTATIVE , LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER TREATING THE TRANSACTIONS TO BE THAT OF PEN NY STOCK COMPANIES RELYING ON THE REPORTS OF INVESTIGATION WING OF INC OME TAX DEPARTMENT, KOLKATA. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE PLACIN G RELIANCE ON A DECISION OF A CO-ORDINATE BENCH IN THE CASE OF HEERACHAND ITA NO.1741 /CHNY/2018. :- 4 -: KANUNGA VS. ITO, (ITA NOS.2786 & 2787/CHNY/2017 , DATED 03.05.2018) SUBMITTED THAT THE ISSUE MIGHT BE REQ UIRED TO BE REMITTED BACK TO THE LD. ASSESSING OFFICER, SO THA T DUE PROCESS OF LAW IS FOLLOWED. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS OF THE AUTHORITIES BELOW. CLAIM OF THE ASSES SEE FOR EXEMPTION U/S.10(38) OF THE ACT, ON ALLEGED LONG TERM CAPI TAL GAINS ARISING ON SALE OF SHARES OF M/S.ESSAR INDIA LTD WAS DISALL OWED BY THE LD. ASSESSING OFFICER CONSIDERING THIS TO BE A PENNY ST OCK COMPANY AND ALLEGING ASSESSEES FAILURE TO BRING EVIDENCE WI TH REGARD TO THE GENUINENESS OF THE TRANSACTIONS. IT IS NOT DISPUTED BY THE LD. DEPARTMENTAL REPRESENTATIVE THAT REVENUE HAD RELIE D ON VARIOUS STATEMENTS RECORDED FROM VARIOUS PERSONS AND RECORD S IMPOUNDED DURING SURVEYS U/S.133A OF THE ACT MENTIONED AT P ARA 2 ABOVE FOR DISBELIEVING THE SALE OF SHARES. THE ASSESSMENT OR DER REFERS TO STATEMENTS OF SHRI. MUKESH AGARWAL, SHRI. HARSHVARD HAN KAYAN, AND ALSO THE INVESTIGATION REPORT OF THE INCOME TAX DEP ARTMENT FROM KOLKATA. THESE WERE RELIED ON BY THE LD. ASSESSI NG OFFICER FOR DISBELIEVING THE CLAIM OF SALE IN THE SHARES. THOU GH IT IS STATED IN THE ASSESSMENT ORDER THAT ASSESSEE WAS APPRISED ABOUT THE INVESTIGATION DONE IN KOLKATA, IT IS NOT CLEAR WHETHER THE REPORT S OF SUCH ITA NO.1741 /CHNY/2018. :- 5 -: INVESTIGATION AND STATEMENTS RECORDED FROM VARIOUS PERSONS RELIED ON BY THE REVENUE FOR DISBELIEVING THE CLAIM OF THE SA LE OF SHARES, WERE PUT TO THE ASSESSEE. UNDISPUTEDLY, THE SALE OF SHA RES WERE THROUGH RECOGNIZED STOCK EXCHANGE AND THROUGH A RECOGNIZED STOCK BROKER. IN A SIMILAR CASE OF HEERACHAND KAUNGA (SUPRA) DECIDED BY A CO- ORDINATE BENCH, WHERE ALSO SALE OF SHARES IN WHAT IS CALLED AS PENNY STOCK COMPANIES WERE DISBELIEVED BY THE REVENUE FO R ALMOST SIMILAR REASONS, THIS TRIBUNAL HAD HELD AS UNDER AT PARA 9 TO 12 OF ITS ORDER DATED 03.05.2018. 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMIT TEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT T O BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO BE SUPPOR TED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE A SSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADMITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL GAINS TO HIS CLIENTS. THE SAID SHRI ASHOK KUMAR KAYAN ALSO ALLEGEDLY SEEMS TO HAVE PROVIDED THE ASSESSEE S NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STA TEMENT GIVEN BY SHRI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE FOR CROSS-EXAMINA TION. IN THE ABSENCE OF OPPORTUNITY OF CROSS-EXAMINATION, THE ST ATEMENT REMAINS MERE INFORMATION AND SUCH INFORMATION CANNO T BE FOUNDATION FOR ASSESSMENT. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PU RCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTAL ING INTO RS.3,00,000/-. THE ASSESSEE CLAIMS TO HAVE PAID CAS H FOR THE PURCHASE OF THESE SHARES. THE PRIMARY QUESTION WOU LD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BE EN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHARE CERTIFICATES AND THE SHARE TRANS FER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC .40A(3)? ITA NO.1741 /CHNY/2018. :- 6 -: WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS O F THE ASSESSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSACTION DONE? WHO APPLIE D 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 YEA RS 2010- 11 & 2011-12? WHEN WERE THE CHEQUES RECEIVED BY TH E ASSESSEE? FROM WHOM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH DEPOSIT IMMEDIATELY PRIOR TO THE ISSUING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER O F 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 STATE S THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL, KO LKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE A SSESSEE IN GOOD FAITH HAS PURCHASED THE SHARES OF M/S.BPL FROM A SUB- BROKER IN HIS FRIENDS CIRCLE. WHAT IS THE TRUE NAT URE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTUALLY PU RCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESSION OF THE SH ARES IN ITS PHYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT OR DER, IT IS MENTIONED THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRADING IN SHARES. IF THIS IS SO, DOES T HE DEMAT ACCOUNT SHOW SUCH TRANSACTIONS BEING DONE BY THE ASSESSEE O R IS THIS THE ONLY ONE OF TRANSACTION. THUS, CLEARLY THE FACTS R EQUIRED FOR ADJUDICATING THE APPEALS ARE NOT FORTHCOMING. THER E IS NO EVIDENCE WHATSOEVER TO SHOW THAT THE ASSESSEE HAS H ELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUSE AS SUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARES OF M/S.BPL H AS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATE LY FLOWN OUT. THEN THE FACTUM OF THE POSSESSION OF THE SHAR ES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHCOMING. 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 DONE ON VARIOUS DATES. THEN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFERENCE IN THE DATES OF DEMA TING WHEN 15000 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 PERI OD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE THE SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKER OF THE STOC K EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WOULD HAVE DRAWN ATT ENTION. THIS BEING SO, AS THE FACTS ARE NOT COMING OUT OF THE AS SESSMENT ORDER NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE S IDE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THI S APPEAL MUST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATI ON AFTER GRANTING ITA NO.1741 /CHNY/2018. :- 7 -: THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE I TS CASE AND WE DO SO. 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGAINST T HE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GI VEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVID ED TO THE ASSESSEE FOR CROSS-EXAMINATION. HOWEVER, THE ASSES SEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITAL GAIN S IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S .10(38) BY PROVIDING ALL SUCH EVIDENCES AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCING THE PER SONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB- BROKER, FRIEND AND THE BROKER THROUGH WHOM THE TRAN SACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. IN LINE WITH THE ABOVE, WE ARE OF THE OPINION THAT QUESTION REGARDING GENUINENESS OF THE CLAIM OF LONG TERM CAPITAL GAINS REQUIRES TO BE RESTORED TO THE LD. ASSESSING OFFICER FOR RECONSIDE RATION AFTER GRANTING ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE. REVENUE HAS TO FURNISH TO THE ASSESSEE ALL THE STATEMENTS RELI ED ON BY THEM. USEFUL REFERENCE MAY BE MADE TO THE LAW LAID DOWN B Y HONBLE APEX COURT IN THE CASE OF CIT VS. SUNITA DHADDA, SLP (CIVIL ) NO.9432/2018, DATED 28.03.2018 , WHILE AFFIRMING A JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS.SMT. SUNITA DHADDA , WHERE THE IMPORTANCE OF PROVIDING AN OPPORTUNITY TO CROSS EXAMINE THE WITNESS HAS BEEN STRESSED. THEIR LORDS HIP HELD THAT THIS WAS AN IMPORTANT CONSTITUENT OF NATURAL JUSTICE. ONLY AFTER ALL THE STEPS REQUIRED UNDER LAW IS COMPLETE, IT CAN BE AS CERTAINED WHETHER CLAIM OF CAPITAL GAINS WAS BOGUS OR NOT. WE THEREFO RE SET ASIDE THE ITA NO.1741 /CHNY/2018. :- 8 -: ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 13TH DAY OF NOVE MBER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 13 TH NOVEMBER, 2018 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF