Ranautar Agarwal, Chennai V. ACIT, Non Corp Cir-10(1), Chennai

ITA 211/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8792 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 29-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G D JAYANTHI ANGAYARKANNI
• Assessee Lawyers: N ARJUN RAJ
• Keywords: Unexplained cash credit; Share purchase agreement; Principle of natural justice; Earning of tax free income; Wrong claim; Set aside; Capital Gains
• Section: 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.211/CHNY/2019 ( / ASSESSMENT YEAR: 2014-15) SHRI RAMAUTAR AGARWAL, FLAT 4-D, NO.18-21, THE HERITAGE APARTMENT, 4 TH CROSS STREET, ORMES ROAD, KILPAUK, CHENNAI 600 010. VS THE ACIT, NON-CORPORATE CIRCLE 10(1), CHENNAI. PAN: AADPR 0951N ( /APPELLANT) ( /RESPONDENT) APPELLANT BY : SHRI N. ARJUN RAJ, CA RESPONDENT BY : SMT. G.D. JAYANTHI ANGAYARKANNI, JCIT /DATE OF HEARING : 20.08.2019 !' /DATE OF PRONOUNCEMENT : 16.09.2019 ' / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-12, CHENNAI IN ITA NO.146/CIT(A)-12/2016-17 DATED 28.12.2018 FOR THE A SSESSMENT YEAR 2014-15. 2 ITA NO.211/CHNY/2019 2. SHRI RAMAUTAR AGARWAL, THE ASSESSEE, AN INDIVI DUAL PURCHASED 1,60,000 SHARES OF M/S. UNNO INDUSTRIES L TD., FOR RS.20,00,000/- AND SOLD THEM FOR RS.4,96,84,259/- W ITHIN A SPAN OF ONE YEAR AND CLAIMED IT AS AN EXEMPT INCOME U/S.10( 38). THE ASSESSING OFFICER RECEIVED A REPORT FROM THE INVEST IGATION WING OF KOLKATA, IN WHICH, INTER ALIA, THE ASSESSEE WAS SPE CIFIED AS ONE OF THE PARTIES WHO INDULGED IN BOGUS / NON-GENUINE LONG TE RM CAPITAL GAIN FROM THE TRANSACTIONS OF ALLEGED PURCHASE AND SALE OF SHARES OF M/S. UNNO INDUSTRIES LTD. FURTHER, THE SHARES OF U NNO INDUSTRIES LTD., WERE FOUND BY THEM AS PENNY STOCK COMPANY WHICH HAS BEEN USED FOR GENERATING BOGUS LTCG AND THE INVESTIGATIONS RE VEALED THAT A SCHEME WAS HATCHED BY VARIOUS PLAYERS TO OBTAIN / P ROVIDE ACCOMMODATION OF ENTRY OF BOGUS LTCG THROUGH MANIPU LATION OF STOCK MARKET. THEREFORE, THE ASSESSING OFFICER SCRU TINIZED THE ASSESSMENT, REQUIRED THE ASSESSEE TO FURNISH PARTIC ULARS, AND AFTER CONSIDERING REPLY ETC., EXAMINED THE ENTIRE SET OF TRANSACTIONS IN THE BACKGROUND OF THE INFORMATION RECEIVED FROM THE DIT (INV), KOLKATTA AND ON DETAILED ANALYSIS OF THE TRANSACTIONS HELD, INTER ALIA, THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES ARE NOT GENUINE, IT IS A COLOURABLE DEVICE ADOPTED BY THE ASSESSEE TO GIVE T HE COLOUR OF GENUINENESS TO THESE TRANSACTIONS THROUGH WHICH THE ASSESSEE WAS 3 ITA NO.211/CHNY/2019 SUCCESSFUL IN BRING BACK HIS OWN UNACCOUNTED CASH I NTO HIS BOOKS WITHOUT THE NEED TO PAY ANY TAXES. THEREFORE, THE A SSESSING OFFICER TREATED THE ENTIRE TRANSACTIONS AS SHAM AND ASSESSE D RS.4,98,13,599/- AS UNEXPLAINED CREDITS. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD CIT(A) D ISMISSED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL. 3. IT WAS SUBMITTED BY LD.AR THAT THE ISSUE IN THIS A PPEAL IS AGAINST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFICER IN TREATING THE PURCHASE A ND SALE OF SHARES BY THE ASSESSEE AS PENNY STOCK TRANSACTIONS. THE L D.AR SUBMITTED THAT LD.CIT(A) DISMISSED THE APPEAL MAINLY RELYING ON THE REPORT OF THE INVESTIGATION OF THE DEPARTMENT WITHOUT APPRECI ATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, HE PLEADE D TO ALLOW THE APPEAL. PER CONTRA, THE LD.DR SUBMITTED THAT THE AS SESSEE HAS CLAIMED DEDUCTION U/S 10 (38) BUT HE HAS NOT FURNIS HED ANY MATERIAL IN SUPPORT OF HIS CLAIM AND TO PROVE THE GENUINENES S OF THE TRANSACTIONS. FURTHER, THE ASSESSEE HAS NOT FURNISH ED ANY MATERIAL IN SUPPORT OF HIS CLAIM AND TO PROVE THE GENUINENESS O F THE TRANSACTIONS. THEREFORE, REITERATING THE FACTS AND CIRCUMSTANCES OF 4 ITA NO.211/CHNY/2019 THESE CASES FROM THE ORDERS OF THE LOWER AUTHORITIE S, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT THE ASSESSEE HAS NOT BEEN GIVEN A FAIR OPPORTUNITY TO PROVE THE GENUINENESS BUT THE ASSESSMENT HAS BEEN MADE PRIMAR ILY BASED ON THE EVIDENCES COLLECTED BY THE REVENUE IN THE COURS E OF THE INVESTIGATION CONDUCTED BY THEM ON THE BROKERS / SH ARE BROKING ENTITIES ETC. THIS IS NOT PERMISSIBLE. THIS BEING S O, IN THE INTERESTS OF NATURAL JUSTICE, THE ISSUE OF THE GENUINENESS OF TH E TRANSACTIONS REQUIRE RE-ADJUDICATION. SINCE, THE RIGHT TO EXEMPT ION MUST BE ESTABLISHED BY THOSE WHO SEEK IT, THE ONUS THEREFOR E LIES ON THE ASSESSEE. IN ORDER TO CLAIM THE EXEMPTION FROM PAY MENT OF INCOME TAX, THE ASSESSEE HAD TO PUT BEFORE THE INCOME TAX AUTHORITIES PROPER MATERIALS WHICH WOULD ENABLE THEM TO COME TO A CONCLUSION. (35 ITR 312 (SC)). THUS, THE AO MUST KEEP IN MIND T HAT THE ONUS OF PROVING THE EXEMPTION RESTS ON THE ASSESSEE. IF TH E AO DOES HAVE ANY EVIDENCE TO THE CONTRARY, IT IS TO BE PUT TO TH E ASSESSEE FOR HIS REBUTTAL. THE INTERNAL COMMUNICATIONS OF THE REVENU E ARE EVIDENCES FOR DRAWING AN OPINION ON POSSIBLE WRONG CLAIMS BUT THEY ARE NOT THE 5 ITA NO.211/CHNY/2019 FINAL EVIDENCE. THIS TRIBUNAL IN THE CASE OF KANHAIYALAL & SONS (HU F) V. ITO IN I.T.A. NO.1849/CHNY/2018 DATED 06.02.2019 , HAS REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICE R FOR RECONSIDERATION. THIS TRIBUNAL HAS OBSERVED AT PARA 4 OF ITS ORDER AS UNDER:- 4. WE HEARD SHRI AR.V. SREENIVASAN, THE LD. DEPART MENTAL REPRESENTATIVE ALSO. ADMITTEDLY, THE ASSESSING OFF ICER DISALLOWED THE CLAIM OF THE ASSESSEES ON THE BASIS OF THE INFORMAT ION SAID TO BE RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT AT KO LKATA WITH REGARD TO INVESTMENT MADE BY THE ASSESSEES IN THE PENNY STOCK COMPANY. IT IS NOT IN DISPUTE THAT A COPY OF THE INVESTIGATION REPORT SAID TO BE RECEIVED FROM KOLKATA WAS NOT FURNISHED TO THE ASSESSEE. MOREOVE R, DETAILS OF THE ENQUIRIES SAID TO BE MADE BY THE ASSESSING OFFICER WERE ALSO NOT FURNISHED TO THE ASSESSEES. IN THOSE CIRCUMSTANCES , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS T O RECONSIDER THE ISSUE AFRESH AFTER FURNISHING THE MATERIAL RELIED UPON BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF BOTH THE AUTHORITIES BEL OW ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF TH E ASSESSING OFFICER. THE ASSESSING OFFICER SHALL BRING ON RECORD THE ROLE OF THE ASSESSEES IN PROMOTING THE COMPANY AND THE RELATIONSHIP OF THE A SSESSEES, IF ANY WITH THE PROMOTERS, ROLE OF THE ASSESSEES IN INFLATING T HE PRICE OF SHARES, ETC. THE ASSESSING OFFICER SHALL ALSO FURNISH A COPY OF THE INVESTIGATION REPORT SAID TO BE RECEIVED FROM THE INVESTIGATION W ING OF THE DEPARTMENT AT KOLKATA AND OTHER MATERIALS IF ANYTHING IN HIS P OSSESSION AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WI TH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEES. 4.1 FURTHER, PERUSAL OF THE ABOVE CASE SHOW TH AT IT IS SIMILAR TO THE FACTS IN THE CASE OF SHRI HEERACHAND KANUNG A, A DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL MADE, FOR AS SESSMENT YEARS 2010-11 & 2011-12 IN ITA NOS. 2786 & 2787/MDS/2017 DATED 6 ITA NO.211/CHNY/2019 03.05.2018. THE RELEVANT PORTIONS FROM THAT ORDER I S EXTRACTED AS UNDER :- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMI TTEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT T O BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO BE SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSE SSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CA SE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADM ITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL GAINS TO HIS CLIENTS. THE SAID SHRI ASHOK KUMAR KAYAN ALSO ALLEGEDLY SEEMS TO HAVE PROVIDED THE ASSESSEES NAME AND PAN AS ONE OF THE BENEFICIA RIES. HOWEVER, THIS STATEMENT GIVEN BY SHRI ASHOK KUMAR KAYAN CANN OT BE THE FOUNDATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE F OR CROSS- EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROS S-EXAMINATION, THE STATEMENT REMAINS MERE INFORMATION AND SUCH INF ORMATION CANNOT BE FOUNDATION FOR ASSESSMENT. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PU RCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTALING IN TO RS.3,00,000/- . THE ASSESSEE CLAIMS TO HAVE PAID CASH FOR THE PUR CHASE OF THESE SHARES. THE PRIMARY QUESTION WOULD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BEEN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED TH E SHARE CERTIFICATES AND THE SHARE TRANSFER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A(3)? WAS THERE AD EQUATE CASH AVAILABILITY IN THE BOOKS OF THE ASSESSEE ON 24.04. 2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSAC TION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANSFERRED TO THE DEMAT ACCOU NT OF THE ASSESSEE? TO WHOM WERE THE SHARES SOLD DURING THE A SSESSMENT YEARS 2010-11 & 2011-12? WHEN WERE THE CHEQUES REC EIVED BY THE ASSESSEE? FROM WHOM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH DEPOSIT IMMEDIATELY PRIOR TO THE ISS UING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER OF TH E SHARES OF THE ASSESSEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATES THA T HE HAS 7 ITA NO.211/CHNY/2019 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 SU B-BROKER IN HIS FRIENDS CIRCLE. WHAT IS THE TRUE NATURE OF THE TRA NSACTION? FROM WHOM DID THE ASSESSEE ACTUALLY PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESSION OF THE SHARES IN ITS PHYSI CAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTIONED THA T THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRADING IN SHARE S. IF THIS IS SO, DOES THE DEMAT ACCOUNT SHOW SUCH TRANSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRANSACTION. T HUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING THE APPEALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SHOW THAT THE AS SESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUS E ASSUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARES OF M/S.BPL H AS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FL OWN OUT. THEN THE FACTUM OF THE POSSESSION OF THE SHARES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NO T 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 V ARIOUS DATES. THEN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFERENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN P URCHASED TOGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M /S.BPL COMPANY IS KNOWN, WHAT 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 PERIOD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE W HERE THE SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKE R OF THE STOCK EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WOULD HA VE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE NOT COM ING OUT OF THE ASSESSMENT ORDER NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THIS APPEAL MUST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUD ICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBST ANTIATE ITS 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 GIVEN TO THE A SSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVIDED TO THE ASSESSEE FOR CROSS- EXAMINATION. HOWEVER, THE ASSESSEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITAL GAINS IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10(38) BY PROVIDING ALL S UCH EVIDENCES AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALS O BY PRODUCING THE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKE N THE 8 ITA NO.211/CHNY/2019 TRANSACTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, FRIEND AND THE BROKER THROU GH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMIN ATION. 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE IN ITA NOS.2786 & 2787/CHNY/2017 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4.2 RESPECTFULLY FOLLOWING THE ABOVE ORDERS, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE DEEM IT FIT TO REMIT THE ISSUE OF EXEMPTION IN THIS APPEAL BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION ON THE LINES INDICATED ABOVE. THEREFORE, THE AO SHA LL REQUIRE THE ASSESSEE; TO ESTABLISH WHO, WITH WHOM, HOW AND IN W HAT CIRCUMSTANCES THE IMPUGNED TRANSACTIONS WERE CARRIE D OUT ETC., TO PROVE THAT THE IMPUGNED TRANSACTIONS ARE ACTUAL, GE NUINE ETC. THE ASSESSEE SHALL COMPLY WITH THE AOS REQUIREMENTS AS PER LAW. THE AO IS ALSO FREE TO CONDUCT APPROPRIATE ENQUIRY AS D EEMED FIT. THE ASSESSING OFFICER SHALL ALSO BRING ON RECORD THE RO LE OF THE ASSESSEE IN PROMOTING THE COMPANY AND RELATIONSHIP OF THE ASSES SEE WITH OTHER PROMOTERS, ROLE OF THE ASSESSEE IN INFLATING THE PR ICE OF SHARES, ETC. AS HAD BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF KANHAIYALAL & SONS (HUF) V. ITO IN I.T.A. NO.184 9/CHNY/2018, DATED 06.02.2019 REFERRED TO SUPRA. THE AO SHALL F URNISH ADEQUATE OPPORTUNITY TO THE ASSESSEE ON THE MATERIAL ETC TO BE USED AGAINST 9 ITA NO.211/CHNY/2019 HIM AND ON APPRECIATION OF ALL THE ASPECTS, THE AO WOULD DECIDE THE MATTER IN ACCORDANCE WITH LAW. THUS, THE ISSUES OF EXEMPTION CLAIM U/S 10(38) ARE RESTORED TO THE FILE OF THE ASSESSIN G OFFICER FOR RE- ADJUDICATION ON THE LINES INDICATED ABOVE. 5. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON THE 16 TH SEPTEMBER, 2019 AT CHENNAI. SD/- SD/- #$ /CHENNAI, %& /DATED 16 TH SEPTEMBER, 2019 RSR &' () *) /COPY TO: +, /APPELLANT 2. /RESPONDENT 3. - ( ) /CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 2 /GF ( 3 , , 3 , /' 4 (N.R.S. GANESAN) $ &5 JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER