Gaurishankar Harinarayan Tapadiya, Aurangabad V. Income-tax Officer, Ward - 2(3), Aurangabad

ITA 2093/PUN/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8180 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 26-12-2018
• Assessment Year: 2014-2015
• Appeal Filed On: 07-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Assessee Lawyers: VIKAS TAPADIA GRANDSON OF
• Keywords: Share purchase agreement; Scheme of amalgamation
• Section: 143(3); 68

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO.2093/PUN/2017 / ASSESSMENT YEAR : 2014-15 SHRI GAURISHANKAR HARINARAYAN TAPADIYA, HARIKRUPA SANT EKNATH CO-OP. HOUSING SOCIETY, OPP.AKASHWANI, JALNA ROAD, AURANGABAD PAN : AAMPT1515H . / APPELLANT VS. THE INCOME TAX OFFICER, WARD2(3), AURANGABAD . / RESPONDENT / APPELLANT BY : SHRI VIKAS TAPADIA (GRANDSON OF ASSESSEE) / RESPONDENT BY : SHRI M.K. VERMA DATE OF HEARING : 26.12.2018 / DATE OF PRONOUNCEMENT: 28.12.2018 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS) 2, AURANGABAD DATED 23.06 .2017 RELATING TO ASSESSMENT YEAR 2014-15 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. HONOURBLE COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN TREATING THE GAIN ON TRANSFER OF SHARES AS SHORT TERM GAIN A GAINST APPELLANTS CLAIM AS LONG TERM GAIN AND EXEMPT U/S.10(38) OF THE ACT. APPELLANT PRAYS FOR DELETING WHOLE OF THE ADDITION CONFIRMED BY CIT(A). 2. CIT(A) HAS ERRED IN CONCLUDING THAT DATE OF INVO ICE CANNOT BE TREATED AS DATE OF PURCHASE, APPELLANT PRAYS TO HOLD THE GAIN ON SALE OF SHARE GAIN AS LONG TERM GAIN. 3. APPELLANT PRAYS FOR JUST AND EQUITABLE RELIEF. 4. APPELLANT PRAYS FOR CANCELLATION OF LEVY OF INTE REST U/S.234B. 5. APPELLANT PRAYS TO ADD, ALTER, AMEND, MODIFY, CL ARIFY AND OR WITHDRAW THE GROUND/S DURING APPELLATE PROCEEDINGS. 3. THE APPEAL OF THE ASSESSEE WAS FIXED FOR HEARIN G ON 12-11-2018. THE APPEAL WAS ADJOURNED TO 26-12-2018. HOWEVER, ON TH E APPOINTED DATE OF HEARING, AN ADJOURNMENT APPLICATION WAS MOVED WHICH WAS REFUSED IN VIEW OF THE ISSUE RAISED IN THE APPEAL. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD PURCHASED CERTAIN SHARES OF AN UNLISTED PUBLIC COMPANY WHICH LATER GO T AMALGAMATED AND THE SHARES WERE DEMATTED IN THE HANDS OF THE ASSESSEE O N A LATER DATE. THE ASSESSEE SOLD THE SAID SHARES AFTER ITS DEMAT. THE ASSESSING OFFICER WAS OF THE VIEW THAT IT IS A CASE OF SALE OF PENNY STOCK. THE ASSESSING OFFICER HELD THE TRANSACTION TO BE SHAM TRANSACTION AND THE SAME WAS TREATED AS BOGUS AND ADDED UNDER SECTION 68 OF THE ACT. 5. THE CIT(A) HAS ELABORATELY CONSIDERED THE ISSUE BY MAKING REFERENCE TO VARIOUS DECISIONS AND HAS COME TO A FINDING AFTER L OOKING INTO THE CHRONOLOGY OF EVENTS OF TRANSACTION THAT THE AO HAD WRONGLY INFER RED CERTAIN FACTS AND ACCORDINGLY HELD THE CONCLUSION OF THE ASSESSING OF FICER ON SUCH WRONGLY ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 3 INFERRED FACTS WAS NOT CORRECT. THE CIT(A) HELD TH AT MERELY BECAUSE THE BROKER THROUGH WHOM THE ASSESSEE HAD DONE THE TRANSACTION HAD MADE WRONG DEALINGS WITH OTHER CLIENTS SHOULD NOT BE A CRITERI A TO ESTABLISH GENUINE TRANSACTION OF THE ASSESSEE AND THE CAPITAL GAINS A RISING THEREFROM. THE SAID CHRONOLOGY OF EVENTS ARE MENTIONED IN PARA NO.46 AT PAGE 64 OF THE APPELLATE ORDER AND IN PARA NO.47 AT PAGES 64 AND 65 OF THE A PPELLATE ORDER, THE CIT(A) FURTHER GOES ON TO HOLD THAT THE ASSESSING OFFICER HAD WRONGLY INFERRED THAT M/S.INTIME REALITY PVT. LTD. WAS THE BROKER. INFAC T, THE SAID FIRM WAS THE SELLER OF THE SHARES. THE CIT(A) FURTHER HELD THAT THE AS SESSING OFFICER HAD WRONGLY STATED THAT THE ASSESSEE MADE PAYMENTS FOR PURCHASE IN CASH. IN THIS REGARD, REFERENCE WAS MADE TO THE BANK STATEMENT PROVIDED B Y THE ASSESSEE IN WHICH THERE WAS DEBIT OF THE AMOUNTS WITHIN TWO WEEKS OF MAKING PURCHASES AND THEREFORE, THE CIT(A) HELD THAT THE PAYMENT WAS MAD E THROUGH REGULAR BANKING CHANNELS. HE FURTHER OBSERVED THAT MERELY BECAUSE THERE WAS DELAY IN CONVERTING THE PHYSICAL SHARES INTO ELECTRONIC FORM , I.E, THE DEMAT ACCOUNT COULD NOT BE A CRITERIA TO HOLD THAT THE SHARE TRAN SACTIONS WERE ARRANGED AND CAMOUFLAGED. THE NEXT POINT NOTED BY THE CIT(A) TH AT THE ORIGINAL COMPANY M/S. SWIFT IT INFRASTRUCTURE AND SERVICES LTD. WAS AN UNLISTED PUBLIC COMPANY, THE SHARES OF THE SAME COULD NOT HAVE BEEN ROUTED T HROUGH STOCK EXCHANGE AND HENCE, ORDER NUMBER, TRADE DATE, TRADE TIME WAS NOT OF ANY RELEVANCE FOR THE PURPOSE OF THE SAID TRANSACTION. HE FURTHER HE LD THAT OFF-MARKET TRANSACTIONS WAS NOT AN UNLAWFUL ACTIVITY AND THERE WAS NO RELEV ANCE IN SEEKING DETAILS FROM THE STOCK MARKET FOR MAKING THE ADDITIONS IN THE H ANDS OF THE ASSESSEE. THE CIT(A) FURTHER REFERRED TO THE CBDT CIRCULAR NO.704 DATED 28-04-1995 WHICH LAYS DOWN THAT THE DATE OF BROKERS NOTE SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE OF SECURITIES WHEREIN SUC H TRANSACTIONS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. THE CIT(A) ALSO NOTES THAT IN ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 4 THE SAID CIRCULAR THE PERIOD SHALL BE RECKONED FROM THE DATE OF BROKERS NOTE FOR PURCHASE ON BEHALF OF THE INVESTORS. THE CIT(A) TH EN REFERS TO CBDT CIRCULAR NO.768 DATED 24-06-1998 AND HELD THAT IN VIEW OF TH E TWO CIRCULARS WHICH WERE CLEARED THAT IN CASE OF SECURITIES, THE DATE OF PUR CHASE HAD TO BE TAKEN FROM THE BROKERS NOTE/CONTRACT NOTE AND THE PERIOD OF HOLDI NG WAS ALSO TO BE RECKONED FROM THE DATE OF PURCHASE AND NOT FROM THE DATE OF DEMATERIALIZATION. THE CIT(A) CONCLUDES BY HOLDING THAT HOWEVER, THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THAT THE SAID SHARES WERE HELD FOR MORE THA N 12 MONTHS BY HIM , VIDE PARA NO.48 OF THE APPELLATE ORDER. AFTER CONSIDERI NG ALL THE ASPECTS OF THE TRANSACTION, THE CIT(A) HELD THAT THE TRANSACTION F OR PURCHASE AND SALE OF SHARES BY THE ASSESSEE COULD NOT BE HELD AS BOGUS A S NO MATERIAL WAS FOUND AGAINST THE ASSESSEE DIRECTLY. HOWEVER, SINCE THE ASSESSEE HAD NOT SUBMITTED THE COPIES OF SHARE CERTIFICATE WHICH WOULD INDICAT E THE DATE OF ITS TRANSFER TO THE ASSESSEES ACCOUNT, THE PERIOD OF HOLDING OF THE AS SESSEE IN THE SAID SCRIP COULD NOT BE FOUND AND IN THE ABSENCE OF THE SAME A ND EVEN WHERE THE TRANSFER DEEDS WERE BLANK, THE DELIVERY OF SHARES COULD NOT BE FOUND. EVEN HE HOLDS THAT THE DATE OF HOLDING SHARE SHALL START FROM 02- 08-2013, I.E. ON CONVERSION, THE SHARES OF PARAG SHILP INVESTMENTS LIMITED WERE ISSUED TO THE ASSESSEE. SINCE THE SHARES WERE SOLD ON 13-03-2014, THE PERIO D OF ASSESSEES HOLDING WAS LESS THAN ONE YEAR, THEREFORE, THE GAINS ARISIN G FROM SALE OF SHARES WAS TO BE TREATED AS SHORT TERM CAPITAL GAINS. THE ASSESS EE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN THIS REGARD. 6. ON THE PERUSAL OF RECORD AND THE ASSESSMENT ORDE R/APPELLATE ORDER, FIRST I REFER TO THE CHRONOLOGY OF EVENTS IN THE TRANSACT ION RESULTING IN CAPITAL GAINS ON SALE OF EQUITY SHARES IN THE HANDS OF THE ASSESSEE. THE RELEVANT DETAILS ARE ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 5 TABULATED IN PARA NO.46 AT PAGE 64 OF THE APPELLATE ORDER AND FOR READY REFERENCE THE SAME ARE REPRODUCED HEREIN BELOW : DATE EVENT EVIDENCES 24/08/2012 PURCHASE OF SHARES OF SWIFT IT INFRASTRUCTURE & SERVICES LTD. BROKERS NOTE I.E., INVOICE OF INTIME REALITY PVT. LTD.,; COPY OF BANK STATEMENT EVIDENCING PAYMENT ON 04/09/2012; SHARES TRANSFER FORM 03/05/2013 AMALGAMATION OF SWIFT IT INFRASTRUCTURE & SERVICES LTD. INTO PARAG SHILPA INVESTMENTS LTD. ORDER OF HIGH COURT APPROVING THE SCHEME OF AMALGAMATION 02/08/2013 ALLOTMENT OF SHARES OF PARAG SHILPA INVESTMENTS LTD., SHARE CERTIFICATE OF PARAG SHILPA INVESTMENTS LTD. 20/01/2014 SHARES OF PARAG SHILPA DMATTED IN ASSESSEES NAME TRANSACTION STATEMENT OF NSDL 12/03/2014 SALE OF SHARES OF PARAG SHILPA INVESTMENTS LTD. CONTRACT NOTE OF NIRMAL BANG SECURITIES PVT. LTD., 20/03/2014 SALE OF SHARES OF PARAG SHILPA INVESTMENTS LTD. CONTRACT NOTE OF NIRMAL BANG SECURITIES PVT. LTD., 7. THE ASSESSING OFFICER IN VIEW OF CERTAIN INFORMA TION RECEIVED AND ON NON-APPRECIATION OF THE FACTUAL ASPECTS HAD HELD TH E SHARE TRANSACTION TO BE SHAM. THE CIT(A) HAD ACCEPTED THE PURCHASE OF THE S HARES OF M/S. SWIFT IT INFRASTRUCTURE AND SERVICES LTD. BY THE ASSESSEE FR OM CONCERN M/S. INTIME REALITY PVT. LTD. IN PARA NO.47, THE CIT(A) OBSERV ED THAT THE AO WAS WRONG IN STATING THAT THE ASSESSEE HAD MADE THE PAYMENTS FOR PURCHASE OF SHARES IN CASH AND HAS ALSO OBSERVED THAT THE CONCERN M/S. IN TIME REALITY PVT. LTD. WAS NOT THE BROKER BUT WAS THE ACTUAL SELLER OF THE SHA RES. THE CIT(A) ALSO NOTES THAT THE ENTRIES IN ASSESSEES BANK ACCOUNT WHEREIN THE AMOUNT HAD BEEN DEBITED WITHIN A WEEK OF MAKING THE PURCHASE AND OB SERVED THAT THE SAME WAS THROUGH REGULAR BANKING CHANNEL. ANOTHER POINT WHI CH WAS CONSIDERED BY THE CIT(A) WAS THE DELAY IN CONVERTING THE PHYSICAL SHA RES INTO DEMATTED FORM AND HAS OBSERVED THAT THE SAME CANNOT BE THE CRITERIA T O HOLD THAT THE SHARE TRANSACTIONS WERE ARRANGED AND CAMOUFLAGED. THE CI T(A) HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT IT IS A TRANSACTION OF SA LE OF SHARES AND ASSESSED THE ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 6 INCOME UNDER THE HEAD INCOME FROM SHORT TERM CAPIT AL GAINS AS AGAINST THE CLAIM OF THE ASSESSEE OF ASSESSING THE SAME UNDER INCOME FROM LONG TERM CAPITAL GAINS. THE REVENUE IS NOT IN APPEAL AGAINS T THE ORDER OF CIT(A) AND HENCE, THE OBSERVATION OF THE ASSESSING OFFICER IN HOLDING THE TRANSACTION TO BE SHAM, DO NOT STAND. 8. THE ONLY ISSUE TO BE DECIDED IS WHETHER IT IS A TRANSACTION OF LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. THE CIT(A ) HAS TAKEN THE ALLOTMENT OF SHARES OF PARAG SHILP INVESTMENTS LTD. ON 02-03-201 3 AS THE DATE OF PURCHASE IN THE HANDS OF THE ASSESSEE. IT MAY BE NOTED THAT THE AFORESAID ALLOTMENT WAS MADE SINCE M/S. SWIFT IT INFRASTRUCTURE & SERVICES LTD. HAD AMALGAMATED INTO PARAG SHILP INVESTMENTS LTD. BY THE ORDER OF HONBL E HIGH COURT APPROVING THE CASE OF AMALGAMATION ON 03-05-2013. IN OTHER WORDS , THE ASSESSEE WOULD BE ENTITLED TO THE AFORESAID ALLOTMENT OF SHARES OF PA RAG SHILP INVESTMENTS LTD., IF IT WAS ORIGINALLY HOLDING THE SHARES OF M/S. SWIFT IT INFRASTRUCTURE & SERVICES LTD. THE ASSESSEE HAS PAID FOR THE SAID PURCHASE OF SHAR ES OF M/S. SWIFT IT INFRASTRUCTURE & SERVICES LTD. BY CHEQUE ON 04-09-2 012. THE INVOICE OF PURCHASE IS DATED 24-08-2012. THE CBDT IN ITS CIRC ULAR DATED 28-04-1995 HAS LAID DOWN THAT THE DATE OF BROKERS NOTE SHOULD BE TREATED AS DATE OF TRANSFER PROVIDED THE TRANSACTION OF SECURITIES ARE FOLLOWED UP BY DELIVERY OF SHARES. IN CASE, THE SHARES WERE DELIVERED TO THE ASSESSEE, TH EN HE WOULD NOT BE ENTITLED TO THE SCHEME OF AMALGAMATION WHICH CULMINATED ON 0 3-05-2013. IN SUCH A SCENARIO, I FIND NO MERIT IN THE FINDINGS OF CIT(A) IN THIS REGARD AND HOLD THAT WHERE THE ASSESSEE HAD MADE THE PAYMENT FOR ACQUISI TION OF THE SAID SHARES THROUGH BANKING CHANNEL, THE SHARES STAND TRANSFERR ED ON 04-09-2012, MERELY BECAUSE THE SHARES TRANSFER FORM WERE BLANK DOES NO T MEAN THAT THE SHARES WERE NOT DELIVERED TO THE ASSESSEE. THE DELIVERY O F SHARES DID TAKE PLACE. IN ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 7 CASE, THEY WERE NOT DELIVERED TO THE ASSESSEE, THEN UNDER THE AMALGAMATION SCHEME, THE ASSESSEE COULD NOT HAVE BEEN ENTITLED T O ALLOTMENT OF SHARES OF SAID AMALGAMATING ENTITY, I.E. PARAG SHILP INVESTME NTS LTD. IN THE ENTIRELY OF THE FACTS AND CIRCUMSTANCES, I HOLD THAT THE ASSESS EE HAS MADE THE AFORESAID INVESTMENT ON 24-08-2012 OR AT BEST ON 04-09-2012 A ND SINCE THE SHARES WERE SOLD ON 20-03-2014, THEN THE GAINS ARISING FROM SAL E OF THE SHARES IS TO BE ASSESSED AS INCOME FROM LONG TERM CAPITAL GAINS. THUS, I ALLOW THE CLAIM OF THE ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF DECEMBER, 2018. SD/- (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE DATED : 28 TH DECEMBER, 2018 SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-2, AURANGABAD 4. / THE PR.CIT-2, AURANGABAD 5. 6. , , , - / DR SMC, ITAT, PUNE; / GUARD FILE. / BY ORDER, //TRUE COPY// SENIOR PRIVATE SECRETARY, , / ITAT, PUNE ITA NO.2093/PUN/2017 GAURISHANKAR H. TAPADIA 8 DATE 1. DRAFT DICTATED ON 26-12-18 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 28-12-18 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER.