Neelu Mahansaria, Surat V. Income Tax Officer, Ward - 1(3)(3), Surat

ITA 197/SRT/2023

AI Insights

The case revolves around the appeal by Neelu Mahansaria against the order of the National Faceless Appeal Centre (NFAC), which upheld the additions made by the Income Tax Officer (ITO) under sections 68 and 69 of the Income Tax Act, 1961, concerning the sale of shares of Mishka Finance & Trading Ltd. The ITO had treated the proceeds from the sale as undisclosed income and the commission paid on the LTCG as unexplained expenditure. The Tribunal examined the evidence presented by the assessee, including the legitimacy of the transactions through the Bombay Stock Exchange and the payment of Security Transaction Tax (STT), and found no cogent evidence to support the additions made by the ITO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134683 (ITAT-SURAT)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-05-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 21-03-2023
• Other Referred Cases: CIT vs. Himani M. Vakil, PCIT vs. Parasben Kasturchand Kochar, Parasben Kasturchand Kochar Mehtea Lodha & Co. vs. ITO, PCIT Vs Indravadan Jain (HUF), ITO Vs Indravadan Jain (HUF)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Earning of tax free income
• Section: 68; 69; 133(6)

Judgement Text

आयकर अपीलीय अिधकरण, सुरत Ɋायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL, “SMC” BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER आ.अ.सं./ITA No.197/SRT/2023 (AY 2011-12) (Hearing in Physical Court) Neelu Mahansaria 304, Green Park Apartment, City Light Road, Nr. Corner Point Complex, Surat-395007 PAN No: ADBPM 2707 Q Vs Income Tax Officer, Ward-1(3)(3), Surat अपीलाथŎ/Appellant ŮȑथŎ /Respondent िनधाŊįरती की ओर से /Assessee by Shri Ramesh Malpani, AR राजˢ की ओर से /Revenue by Shri Vinod Kumar, Sr-DR अपील पंजीकरण/Appeal instituted on 22.03.2023 सुनवाई की तारीख/Date of hearing 17.05.2023 उद्घोषणा की तारीख/Date of pronouncement 17.08.2023 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “Ld. NFAC/Ld.CIT(A)”] dated 24.01.2023 for assessment year 2014-15, which in turn arises from the addition made by the Income Tax Officer, Ward-1(3)(3), Surat /Assessing Officer in assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 28.12.2016. The assessee has raised the following ground of appeal:- “(1) The learned Assessing Officer has grossly erred on facts and circumstances of case in adding the total sale proceeds from the sale of scrip MISHKA FINANCE AND TRADING LIMITED of Rs.1509500/- as undisclosed income u/s 68 of the I.T. Act, 1961 together with a sum of Rs. 30,190/-of commission paid on the LTCG as unexplained expenditure under section 69 of the Act. A demand is determined u/s 156 dated 28/12/2016 of Rs.69490/-. The addition by A.O is, incorrect and unjustified. ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 2 (2) The appellant craves leave to add, alter, delete or modify any ground of appeal.” 2. Brief facts of the case are that case of assessee is an individual, filed her return of income for assessment year 2014-15 on 20.03.2015 declaring income of Rs.4,20,670/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that assessee has shown Long Term Capital Gains (LTCG for short) of Rs.15,19,500/- on sale of share of scrip named “Mishka Finance & Trading Ltd.”, which was earlier known as Pyramid Trading & Finance Ltd. The assessee has shown to have purchased 1000 shares @ Rs.35/- per share of Pyramid Trading & Finance Ltd. on 03.12.2012, though, the face value of share was @ Rs.10/- per share. The Assessing Officer recorded that the assessee was also allotted bonus shares in the ratio of 1:7, thus, the assessee got 7000 shares thereby became owner of 8000 shares. Thereafter the face value of shares was also splitted vide resolution dated 16.01.2014. On splitting such value, assessee became owner of 800000 shares, out of which assessee sold 30000 shares during the financial year 2013-14. In order to verify the transaction, the Assessing Officer issued notice under section 133(6) of the Act to Bombay Stock Exchange (‘BSE’ for short). The Assessing Officer was also having information from Investigation Wing, Kolkata, about the providing accommodation entry of LTCG in listed Companies with BSE. Mishka Finance & Trading Ltd., was one of the such company and on the basis of report of Investigation Wing, Kolkata, the Assessing Officer was of the view ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 3 that assessee is beneficiary of capital gains on penny stocks. The Assessing Officer on the basis of report of Investigation Wing, Kolkata issued show cause notice as to why sale and purchase of shares of Mishka Finance & Trading Ltd. should not be treated as unexplained credit. The Assessing Officer also issued show cause notice as to why the commission should not be considered @ 2% of bogus LTCG. In this regard, assessee filed her reply dated 19.12.2016. The reply of assessee is recorded in para-13 of assessment order. The assessee submitted that she purchased 1000 shares @ Rs.35/- per share of Pyramid Trading & Finance Ltd. on 03.12.2012 having face value of Rs.10/- per share which were sent to RTA for transfer on 31.01.2013. The said company declared bonus in the ratio 1:7 on 14.02.2013 accordingly allotted 7000 bonus share and assessee became owner of 8000 shares thereafter shares were splitted into and holding became 80000 shares out of which assessee sold 30000 shares in financial year 2013-14 and sale transaction was received in last week of March, 2014 and consideration was not received till 31 st March 2014. Thus, the gain on sale of shares was accounted in financial year 2014-15 on received basis. The shares of Mishka Trading & Finance Ltd., was listed in a recognized Stock Exchange and transaction was confirmed by BSE and broker M/s Edelweiss Stock Broking Ltd., and shares were held in demat account for more than 12 months. The transactions were conducted through banking channel. The assessee was also holding shares and securities apart from shares of assessee has exempt income from capital gains in earlier year as well. The ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 4 assessee is maintaining demat account for more than ten years and allegation made in the show cause notice is baseless and capital gains earned by assessee is fully explained. The assessee has no nexus with the company directly or indirectly nor managing affairs with such company. The transactions were conducted through BSE and assessee claimed that her transactions were genuine. Merely because the probe was done by SEBI against the broker or against the company, the assessee cannot be claimed to have entered into an in genuine transactions. 3. The reply of assessee was not accepted by Assessing Officer and he held that assessee silent as to why she has come to know about the company and having financial position. The assessee has no experience in share market but Assessing Officer was having information that 84 companies are engaged in providing bogus accommodation entries of LTCG. The assessee has earned total of Rs.15,09,500/-, which is not genuine and Assessing Officer added the entire amount under section 68 of the Act. The Assessing Officer also made addition on account of commission payment @ 2% of LTCG thereby made further addition of Rs. 30,190/- while passing the assessment order on 28.12.2016. 4. Aggrieved by the action of Assessing Officer the assessee filed appeal before Ld. CIT(A). Before NFAC/Ld. CIT(A) assessee filed detailed written submission. The NFAC has not recorded the contents of written submission of assessee though in para-6, wherein the NFAC/Ld. CIT(A) noted that “appellant submitted written submissions ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 5 during the course of appellate proceedings.” The NFAC/Ld. CIT(A) upheld the action of Assessing Officer in a sentence of finding “I have examined the submissions of the appellant and I agree with the Ld. Assessing Officer and accordingly the appeal on this ground is dismissed.” Further aggrieved the assessee has filed present appeal before the Tribunal. 5. I have heard the submission of Ld. Authorized Representative (Ld. AR) for the assessee and Ld. Senior Departmental-Representative (Ld. Sr-DR) for the Revenue. The Ld. AR for the assessee submits that assessee is an individual and filed her detailed written submission before Assessing Officer in assessment proceedings as well as before NFAC/Ld. CIT(A) for appellate proceedings. The Assessing Officer has not considered the submission of assessee and made addition with pre-determined notions and NFAC/Ld. CIT(A) confirmed the action of Assessing Officer without appreciation of facts in a single sentence. The Ld. AR for the assessee submits that assessee furnished completed details about LTCG earned on sale of share held more than 12 months and payment made through banking channel. The assessee has paid security transactions tax (STT) and surplus earned on such sale was claimed as exempt income under section 10(38) of the Act. The sale of shares was made through BSE and all necessary evidence to substantiate the genuineness of such transactions were furnished before lower authorities. The Ld. AR for the assessee submits that assessee furnished letter from RTA in the name of assessee and evidence of issuing of bonus share, copy of demat ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 6 account, intimation of RTA for splitting shares, all contract notes, holding no descriptions in all evidence were identified by Assessing Officer and no adverse comment on such evidence were made by Assessing Officer. The Assessing Officer mainly acted on the report of Investigation Wing, Kolkata, copy of such Investigation Wing was never supplied to assessee. The Ld. AR for the assessee submits that Assessing Officer in his show cause notice also assumed that assessee had paid commission and such assumption is not supported with any corroborative evidence. The sale transactions were received through banking channel though assessee paid security transaction tax. The Ld. AR for the assessee further submits that assessee has furnished contract note issued by Roongta Rising Stock Pvt. Ltd. a share broker is a Number of1NB011309136 with BSE, copy of bank account showing the purchase of shares, intimation of bonus shares and assessee made sales of share through Edelweiss Broking Ltd. which is well known share broker. The Ld. AR for the assessee submits that sale of SEBI conducted inquiry on the allegation against certain share brokers and the beneficiary price manipulation. And on completion of inquiry / investigation by SEBI, it was held that no adverse finding broker of assessee or against the assessee, in alleged price manipulation and no adverse materials were found. The copy of order under section 11, 11(4) and 11(B) of Security Exchange Board of India Act dated 05/10/ 2017 is filed. 6. The Ld. AR for the assessee submits that Assessing Officer has made addition without giving any adverse finding on the evidences ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 7 furnished by the assessee or bringing any adverse materials against evidence furnished by assessee and assessee has fully discharged her onus in proving the genuineness of such transaction. To support his submission, Ld. AR for the assessee relied upon the following decisions:  CIT vs. Himani M. Vakil [2014] 41 taxmann.com 425 (Guj)/[2014] 221 Taxman 140 (Guj)(Mag.)[25-09-2012]  PCIT vs. Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC)/[2021] 282 Taxman 301 (SC)[02-08-2021],  PCIT vs. Parasben Kasturchand Kochar (2021) 130 taxmann.com 176 (Guj),  Parasben Kasturchand Kochar Mehtea Lodha & Co. vs. ITO in ITA No.549/AHD/2018 dated 20.02.2020,  PCIT Vs Indravadan Jain (HUF) ITA No. 454 of 2018 (Bombay High Court) and  ITO Vs Indravadan Jain (HUF) in ITA No. 4861 & 5168/Mum/2018 dated 27.95.2016 7. On the other hand, Ld. Sr-DR for the Revenue supported the order of lower authorities and submits that Assessing Officer was having information that the company, the share scrip of which was purchased by assessee was indulging in providing accommodation entries and assessee has shown abnormal profit within a short span of time. The Ld. Sr-DR for the Revenue submits that assessee failed to disclose how she came to know about such company provided higher profit on sale of their shares and all transactions shown by assessee are nothing but a bogus penny stock share transaction. 8. In short rejoinder, Ld. AR for the assessee submits that assessee has purchased shares of listed company and SEBI made full-fledged investigation vide order dated 05.10.2017 where clearly held that assessee and her share broker has no role in price manipulation. ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 8 Mere allegation of price increase cannot be a ground for doubting such transactions when the entire trans are supported with evidence and no adverse materials were brought on record against such evidence. 9. I have considered the submission of both the parties and perused the order of lower authorities carefully. I find that the Assessing Officer doubted the transaction of assessee on the basis of report of Investigation Wing Kolkata. I further find that SEBI has initiated investigation in respect of Mishka Finance & Trading Ltd. I find that merely because there was allegation and investigation was done by SEBI against the company and assessee cannot be said to have enter into ingenuine transactions. So far as assessee is concerned, she has no control over the activities of the brokers or price manipulation. I further find that assessee has furnished complete evidence including contract note of shares, demat details, detail of bonus shares. However, no adverse evidence was brought against such evidence. Nor the assessing officer made adverse comment on such evidences. I further find that SEBI made a through inquiry against Mishka Finance & Trading Ltd. and vide order dated 05.10.2017 that no adverse materials were found in the investigation report with respect to prima facie violation. 10. I find that Hon'ble jurisdictional High Court in the case of Himani M. Vakil (supra) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 9 transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. I further find that Hon'ble jurisdictional High Court in the case of Parasben Kasturchand Kochar (supra) also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished by Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. 11. Further I find of Hon'ble Bombay High Court in the case of PCIT Vs. Indravadan Jain, HUF (supra) in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction. 12. I find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, I do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. In the result, the addition of undisclosed income under section 68 is deleted. Considering the fact ITA No.197/SRT/2023 (A.Y 14-15) Neelu Mahansaria 10 that I have accepted the LTCG by deleting the addition made under section 68, therefore the addition of alleged commission payment is also deleted. This ground of assessee is also allowed. 13. In the result, the appeal of the assessee is allowed. Order pronounced in open court on 17 August,2023. Sd/- (PAWAN SINGH) [Ɋाियक सद˟ JUDICIAL MEMBER] सूरत /Surat, Dated: 17/08/2023 Dkp. Out Sourcing Sr.P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)- 4. CIT By order 5. DR 6. Guard File // True Copy // Senior Private Secretary/ Private Secretary/Assistant Registrar, ITAT, Surat True copy/