SHRI MUKESH M.TRIVEDI, MUMBAI V. DY.COMM OF INCOM TAX-CENTRAL CIRCLE -2 , THANE

ITA 1955/MUM/2022

AI Insights

The case involves Shri Mukesh M. Trivedi, who appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the reassessment of his income for the assessment year 2013-14. The reassessment was based on the claim of exemption on long-term capital gains from shares considered as penny stocks, which were found to be involved in price manipulation and circular trading. The Tribunal dismissed the appeal, agreeing with the lower authorities that the reassessment was valid and the gains were not genuine.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125845 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 07-08-2022
• Other Referred Cases: PCIT vs Swati Bajaj & other cases
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Income from undisclosed sources; Reassessment proceedings
• Section: 68; 148; 143(3); 142(1); 133(6); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI G.S. PANNU, PRESIDENT, AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.1955/Mum./2022 (Assessment Year : 2013–14) Shri Mukesh M. Trivedi B–205, Meri Gold Ram Mandir Road Vazira Naka, Borivali (West) District Thane 400 092 PAN – AACPT0784C ................ Appellant v/s Dy. Commissioner of Income Tax Central Circle–2, Thane ................Respondent Assessee by : None Revenue by : Shri A.D. Chogule Date of Hearing – 06/02/2023 Date of Order – 07/02/2023 O R D E R PER BENCH The present appeal has been filed by the assessee challenging the impugned order dated 27/06/2022 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-11, Pune [“learned CIT(A)”], for the assessment year 2013-14. 2. When this appeal was called for hearing neither anyone appeared on behalf of the assessee nor was any application seeking adjournment filed. From the perusal of record, we find that even on previous occasions also no one appeared on behalf of the assessee, despite service of notice. Therefore, in view of the above, we proceed to dispose off the present appeal ex–parte, Shri Mukesh M. Trivedi ITA no.1955/Mum./2022 Page | 2 qua the assessee after hearing the learned Departmental Representative (“learned D.R.”) and based on the material available on record. 3. In this appeal, the assessee has raised the following grounds: “1. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding validity of issuing notice u/s. 148 of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding addition made of Rs. 83,31,639 /- to the returned income by treating genuine LTCG earned on purchase and sale of shares claimed as exempt u/s 10(38) of the IT Act as unexplained cash credit u/s 68 of the IT act 1961 and the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and rules made thereunder. 3. Your Appellant crave, leave to add, alter, amend or modify any or all grounds of appeal on or before the date of hearing." 4. The brief facts of the case are: Search and survey action was carried out on SMC group on 23/05/2012. The assessee is engaged as a labour contractor to the main assessee. For the year under consideration, the assessee filed his return of income on 10/03/2014, declaring total income at Rs.30,69,410. Thereafter, the assessment was completed under section 143(3) r/w section 153A of the Act on 27/03/2015, assessing the total income at Rs.79,51,000. Subsequently, assessee’s case was reopened on the basis of information taken from ITBA through AIMS tab that the assessee has claimed exemption of long- term capital gains in share transactions, during the year under consideration, in scrips, namely, NCL Research and Tuni Textile, which are classified as a penny stock. In response to the notice issued under section 148, the assessee submitted that the original return may be treated as a return filed in compliance with the aforesaid notice. During the reassessment proceedings, Shri Mukesh M. Trivedi ITA no.1955/Mum./2022 Page | 3 the Assessing Officer (“AO”) took into consideration the investigation report of the Directorate of Investigation, Kolkata regarding the accommodation entry of long-term capital gain and SEBI action on NCL Research. The AO in detail analysed the financial statement of NCL Research and found that the financial worth of the company is not significant and had razor-thin profits in the recent past. The AO also took into consideration the report of SEBI which found NCL Research to be involved in fraudulent practices. In addition to the above, the AO also issued notices under section 133(6) of the Act to the exit providers to whom the assessee sold the shares, however, these notices were either unserved or no reply was submitted except in respect of one party. Thus, the AO came to the conclusion that NCL Research and various entities involved in circular trading and the sale and purchase of the scrip have all been part of converting unaccounted money into accounted one. Similarly, in respect of Tuni Textile, the AO held that the stock price of the company rose from nearly zero to above Rs. 250, within a short span of 2 years and faced a subsequent steep decline, without anything in the company’s finances to suggest the dramatic increase in company’s share price. The AO also referred to the statement of the Chairman and MD of Tuni Textile wherein he admitted that the stock was used as a penny stock and prizes were artificially manipulated. The Chairman and MD of Tuni Textile also admitted that the company was declared a sick unit by BIFR. The AO held that the assessee has not produced anything to substantiate the identity and creditworthiness of the purchases and has only taken a plea that it is unaware of purchases and sales executed through the stock exchange. Accordingly, the AO disallowed the exemption of Shri Mukesh M. Trivedi ITA no.1955/Mum./2022 Page | 4 long-term capital gains claimed by the assessee in scrips, namely, NCL Research and Tuni Textile, and made the addition under section 68 of the Act. 5. The learned CIT(A), vide impugned order, upheld the initiation of reassessment proceedings in the case of the assessee by observing as under: “10. To sum up, in this case credible information was received by the Assessing Officer which was examined by him. After examination, a reasonable belief was formed by the Assessing Officer that the income for A.Y. 2013-14 escaped assessment. He therefore, issued notice u/s 148 of the Act, after recording 'reasons to believe' and taking approval. On receipt of request from the appellant, copy of reasons recorded was provided to the appellant. The objections filed by the appellant challenging the reopening were also disposed by the Assessing Officer vide his order dated 14/11/2018. Thus, the Assessing Officer has followed the due procedure for reopening the assessment. In view of the totality of facts, provisions of the Act and relevant case laws as discussed above, it is held that notice u/s 148 of the Act was validly issued in this case. Accordingly, ground No. 1 challenging the reopening of the assessment is DISMISSED.” 6. Further, the learned CIT(A) in respect of addition on account of trading in shares of scrips, namely, NCL Research and Tuni Textile, dismissed the appeal filed by the assessee, by observing as under: “21. In the present case, the issue of manipulation of prices of shares of NCL Research and Tuni Textiles has been examined by the Investigation Wing as well as by the AO. In the investigation report, the complete modus operandi of providing the bogus LTCG entries through these shares have been explained. During the assessment proceedings, notices u/s 142(1) were issued to the assessee on 14/06/2018, 17/08/2018, 19/09/2018 and 02/11/2018. However, the requisite information was not submitted by the assessee. Thereafter, were issued to the assessee on 05/12/2018 as well as on 19/12/2018 for recording the appellant's statement under oath. However, the appellant did not appear before him. The appellant is relying on make believe documentation for substantiating the genuineness of long-term capital gain which were filed only on 27/12/2021 i.e. at the fag end of the assessment proceedings. It is a well- established law that the make- believe are not sufficient to substantiate the genuineness of a transaction specially when there are sufficient evidences in possession of the department which proves the transaction was not genuine. In the present case, besides the department, SEBI has independently undertaken the investigation and found that the prices were actually rigged in order to facilitate the bogus LTCG entries to various beneficiaries. In view of this discussion and the recent decision of Calcutta High Court in IA No. GA/2/2022 Shri Mukesh M. Trivedi ITA no.1955/Mum./2022 Page | 5 in ITAT/6/2022 PCIT vs Swati Bajaj & other cases, various contentions raised by the appellant are rejected. 22. The above discussion clearly suggests that the appellant has taken premeditated series of steps for bringing his unaccounted income in the books by way of taking bogus long term capital gain entry. It is a well settled legal position that in deserving cases, the AO can lift the corporate veil in order to uncover the real transaction. Considering the judicial position and the facts of the case, I am of the opinion that the appellant has taken bogus long term capital gain accommodation entry in order to plough back his unaccounted income in his regular books. Accordingly, it is held that the AO has correctly applied the provisions of sec. 68 of the Act and accordingly the addition of Rs. 83,31,639/- made by the AO is upheld. The ground No. 2 raised by the appellant is DISMISSED.” Being aggrieved, the assessee is in appeal before us. 7. During the hearing, the learned D.R. explained the facts of the case and vehemently relied upon the order of the lower authorities. 8. Having heard the learned D.R. and perused the material available on record, we find that in the impugned order, the learned CIT(A) after considering the submissions of the assessee and findings of the AO has dismissed the appeal filed by the assessee both on jurisdiction as well as on merits of the case. In the absence of any contradictory material being available on record, we are of the considered view that the impugned order passed by the learned CIT(A) requires no interference and, therefore, is upheld. Accordingly, grounds raised by the assessee in this appeal are dismissed. 9. In the result, the appeal by the assessee is dismissed. Order pronounced in the open Court on 07/02/2023 Sd/- G.S. PANNU PRESIDENT Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 07/02/2023 Shri Mukesh M. Trivedi ITA no.1955/Mum./2022 Page | 6 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai