ITO, WARD-3, VALSAD V. RAKESH KANTILAL MEHTA, VALSAD

ITA 23/SRT/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0584 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-08-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SURESH K. KABRA
• Keywords: Business income; Opportunity of cross examination; Tax effect; Third party statement; Accommodation entries; Tax effect; Penny stocks; Reassessment proceedings
• Section: 131; 143(3); 268A; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A.L.SAINI, AM आयकर अपीलसं./ITA No.23/SRT/2020 (िनधाŊरणवषŊ / Assessment Year: (2009-10) (Virtual Court Hearing) Income Tax Officer, Ward-3,2 nd Floor, Palak Arcade, Shanti Nagar Tithal Road, Valsad-396001 Vs. Shri Rakesh Kantilal Mehta, A-801, Sharvanee Residency, Tithal Road, Valsad-396001 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: ACSPM1332P (Assessee ) (Respondent) Assessee by : Shri Suresh K Kabra, C.A Respondent by : Shri Vinod Kumar– Sr-DR सुनवाईकीतारीख/ Date of Hearing : 29/08/2022 घोषणाकीतारीख/Date of Pronouncement : 17/10/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the Revenue, pertaining to assessment year 2009-10, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-Valsad, [for short ‘Ld.CIT(A)’] dated 04.11.2019, which in turn arises out of an order passed by the Assessing Officer u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’), dated 29.12.2016. 2. The grounds of appeal raised by the Revenue are as follows: “1) On the facts and circumstances in the case and in Law, the Ld. CIT(A) has erred in deleting the addition of Rs.99,99,753/- on account of LTCG in penny stock u/s 69A of the I.T. Act as the assessee had purchased shares on high prices and sold shares at Lower prices and thereby incurring the loss which is through artificial rigging of prices. 2) It is prayed to quash the order of the Ld. CIT(A) and restore the order of the AO.” 3. The relevant material facts, as culled out from the material on record, are as follows. In the assessee`s case under consideration, the assessment was reopened on the ground that investigation wing had forwarded the investigation report whereby it was informed that the loss on share transactions in the share of Page | 2 ITA No.23/SRT/2020 A.Y. 09-10 Sh. Rakesh K Mehta Dhanus Technology Ltd was not genuine and it was a case of accommodation entry for share trading loss. In the reassessment proceedings, the AO called for details from assessee and after analyzing the same, show cause was issued for bogus long term capital loss by indulging in client code medication through broker in the scrip of Dhanus Tech Ltd. In response, the assessee submitted relevant documents, evidences. However, at para no. six of the assessment order, the AO noted that assessee did not file any details to support his contention neither any compliance to summons u/s 131 was made. Thereafter, in para 7.1, the AO mentioned that the assessee had incurred bogus loss in penny stock (Dhanus Tech Ltd.) through client code modification and therefore, the loss of Rs.2,10,69,546/- was not allowed to be carried forward. In para no. 7.2 of the re- assessment order, the AO discussed the modus operandi of accommodation entries for bogus loss/LTCG through penny stocks of Dhanus Tech Ltd. It was stated that investigation carried out by Kolkata Investigation wing proved that the stock of Dhanus Tech Ltd itself was bogus and therefore, the profit/loss generated through trading of such shares is also bogus. The assessee being one of the beneficiaries of the scheme of accommodation entry for bogus profits/loss, the total loss of Rs.99,99,753/- was held by the AO as returned back in cash. Thus, Rs.99,99,753/- was added by the assessing officer to total income of the assessee, u/s 69A of the Act. 4. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 5. Learned Sr. DR for the Revenue supported the order of Assessing Officer and stated that AO discussed the modus operandi of accommodation entries for bogus LOSS/LTCG through penny stocks of Dhanus Tech Ltd and investigation carried out by Kolkata Investigation wing, has proved that stock of Dhanus Tech Ltd itself was bogus and therefore, the profit/loss generated through trading of such shares is also bogus. The ld DR stated that assessee being one of the Page | 3 ITA No.23/SRT/2020 A.Y. 09-10 Sh. Rakesh K Mehta beneficiaries of the scheme of accommodation entry for bogus profits/loss, therefore addition made by the assessing officer may be upheld. 6. Shri Suresh K Kabra, Learned Counsel for the assessee, begins by pointing out that first of all, Revenue`s appeal is not maintainable on account of low tax effect. For that Ld. counsel for the assessee relied on the order of Co-ordinate Bench of ITAT Ahmedahabad, in the case of Income Tax Officer vs. Palak Chinubhai Patel in ITA No. 115/AHD/2020 for assessment year 2011-12 (2022) 137 taxmann.com 194 (Ahmedabad – Trib.), wherein it was held as follows: “5. We have heard both the sides and also perused the contents of the Circular Number 23 dated 6th September, 2019 and Office Memorandum dated 16th September 2019. The issue for consideration before us is whether if the assessee has not earned any income under the "capital gains" through sale of alleged penny stocks, whether still his case is covered under the exception provided by Office Memorandum dated 16th September 2019 (which is to the effect that monetary limits fixed for filing appeals before ITAT shall not apply in case of assesses claiming bogus LTCG/STCL through penny stocks). 6. In order to appreciate the submissions made by the Id. AR of the assessee and the Ld. DR, it would be beneficial to reproduce the operative part of Circular dated 6-9-2019 and Office Memorandum dated 16-9-2019: Circular No. 23 of 2019 dated 6-9-2019 2. Several references have been received by the Board that in large number of cases where organised tax evasion scam is noticed through bogus Long Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) on penny stocks and department is unable to pursue the cases in higher judicial fora on account of enhanced monetary limits. It has been reported that in large number of cases, ITATs and High Court have recognized the unique modus operandi involved in such scam and have passed judgements in favour of the revenue. However, in cases where some appellate fora have not given due consideration to position of law or facts investigated by the department there is no remedy available with the department for filing further appeal in view of the prescribed monetary limits. 3. In this context, Board has decided that notwithstanding anything contained in any circular issued u/s 268A specifying monetary limits for filing of departmental appeals before Income-tax Appellate Tribunal (ITAT), High Courts and SLPs/appeals before Supreme Court, appeals may be filed on merits as an exception to said circular, where Board, by way of special order direct filing of appeal on merit in cases involved in organized tax evasion activity. Office Memorandum F. NO. 279/MISC./M-93/2018-ITJ(PT.), dated 16-9-2019 The undersigned is greeted to refer to Circular No. 23 of 2019 dated 6th September, 2019 and to say that by virtue of powers of the Central Board of Page | 4 ITA No.23/SRT/2020 A.Y. 09-10 Sh. Rakesh K Mehta Direct Taxes u/s 268A of Income-lax 1961, the monetary limits fixed for filing appeals before ITAT/HC and before Supreme Court shall not apply in case of assessee claiming bogus through penny stocks and appeals/SLPs in such cases shall be filed on Merits. 7. In Circular No. 23 of 2019 dated 6-9-2019, the CBDT had stated that notwithstanding anything contained in any Circular issued under section 268A specifying monetary limits for filing of departmental appeals before the Income- tax Appellate Tribunal (ITAT), High Courts and SLPs/Appeals before the Supreme Court, appeals may be filed on merits as the exception to the said Circular, where the Board by way of special order direct filing of appeals on merits in cases involved in organized tax evasion activity. The Office Memorandum dated 16-9-2019 was issued pursuant to the said circular dated 6- 9-2019 stating inter alia that by virtue of the powers of CBDT under section 268A of the Income-tax Act, the monetary limits fixed for filing appeals before ITAT/High Court and SLPs/Appeals before Supreme Court shall not lie in case of assessees claiming bogus LTCG/STCL through penny stocks and appeals/SLPs in such cases appeals shall be filed on merits. 8. From a plain reading of the language of Circular No. 23 of 2019 dated 6-9- 2019 read with Office Memorandum dated 16-9-2019, in our view, the same shall apply when assessee has earned/claimed bogus LTCG/STCL through penny stocks. However, there is nothing to suggest that the Circular read with Memorandum would apply with equal force even if the assessee has shown sale and purchase of such alleged penny stocks as "income from business or profession" in its return of income. In our view, the language of Circular read with Memorandum is very categorical and does not suggest any scope for a wider interpretation so as to cover within its scope even 'business income' from purchase and sale of alleged penny stocks. A perusal of the return of income and the computation of income filed by the assessee shows that the assessee has filed return of income declaring income from sale of shares to the tune of Rs.4,83,946/-under the head 'income from business or profession'. The assessee has not declared any income/loss under the head 'capital gains'. The total tax effect from the assessment framed during the captioned year is Rs.3,51,871/- which as admitted by both parties is below the prescribed limit for filing appeals before Tribunal. Therefore, in our view, the case of the assessee does not fall within the exceptions as provided by CBDT Circular No. 23 of 2019 dated 6-9- 2019 read with Office Memorandum dated 16-9-2019 and therefore, the impugned appeal filed by the Revenue deserves to be treated as withdrawn on account of low tax effect. 9. In view of the same, the appeal filed by the Revenue is dismissed as withdrawn. 10. The appeal of the Revenue is accordingly dismissed.” 7. On merits, Ld. Counsel submitted that assessee is engaged in share trading business and therefore the loss so occurred on account of share trading business should be allowed and for that Ld. Counsel relied on the judgment of Hon'ble Page | 5 ITA No.23/SRT/2020 A.Y. 09-10 Sh. Rakesh K Mehta Delhi High Court in the case of Commissioner of Income-tax vs. Gillette Diversified Operations (P.) Ltd. (2010) 324 ITR 226 (Del). The ld Counsel also stated that required documents and details were submitted before the lower authorities, and ld CIT(A) has passed a reasoned and speaking order therefore his order may be upheld. 8. We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee. We note that Revenue has challenged the addition of Rs. 99,99,753/-pertaining to loss transaction on shares of Dhnus Technology Ltd, made by the assessing officer, and on appeal, the same has been deleted by ld CIT(A). We note that during the appellate proceedings, the ld CIT(A) held as follows: “1.The assessee did not or rather could not set off the loss on share trading transactions as is evident from the copies of ITRs and computation of total income for A.Y. 2010-11 to 2018-19 filed during the appellate proceedings. Thus, the reason or motive for getting accommodation entry for loss through sale and purchase transaction of scrip of Dhahus Tech Ltd is absent in the current case. No reasonable person with common business sense can be expected to get accommodation entry for loss by burning loan funds for no reason at all. In the current case, I find that there is no benefit of set off in the current A.Y. or even in succeeding A.Ys up till 2018-19. Thus, the AO's conclusion that the assessee received back cash equivalent to accommodation entry of loss is neither supported by any factual evidence nor by the common business sense. The AO's conclusion is based on general modus operandi of accommodation entry through penny stocks of Dhanus Tech Ltd. Thus, the addition by the AO can be dubbed as based on mere third party statement of accommodation entry without analyzing the facts of assessee's case.” 9. Therefore, we find merit in the submission of ld Counsel to the effect that assessee did not or rather could not set -off the loss on share trading transactions as is evident from the copies of Income Tax Returns ( ITRs) and computation of total income for A.Y. 2010-11 to 2018-19. The ld Counsel took us through paper book page No.18, wherein we observed that assessee has neither shown income under the head “Income from business or profession” nor under the head “Income from Capital gain”, therefore, we are of the view that appeal filed by the Revenue falls in the ambit of low tax effect. Therefore, respectfully following the Judgment of the Co-ordinate Bench of ITAT Ahmedahabad, in the case of Palak Page | 6 ITA No.23/SRT/2020 A.Y. 09-10 Sh. Rakesh K Mehta Chinubhai Patel (supra), we dismiss the Revenue`s appeal on account of low tax effect. 10. Since, we have dismissed the appeal of the Revenue on account of low tax effect; therefore we do not deal with the arguments, on merits, made by both the parties. 11. In the result, the appeal of the Revenue is dismissed. Order is pronounced on 17/10/2022 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date: 17/10/2022 Dkp Outsourcing Sr.P.S./SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat