Shanthilal & Sons (HUF), CHENNAI V. ITO Non Corporate Ward 6(3), CHENNAI

ITA 2660/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1020 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 06-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MARUDHU
• Assessee Lawyers: D ANAND
• Keywords: Share purchase agreement; Principle of natural justice
• Section: 133A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO. 2660/CHNY/2017 / ASSESSMENT YEAR : 2014-2015. M/S. SHANTHILAL & SONS (HUF) NO.31, CHANDRAPPA MUDALI STREET, SOWCARPET, CHENNAI 600 079. [PAN AAEHS 4521C] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 6(3) CHENNAI. ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. D. ANAND, ADVOCATE /RESPONDENT BY : SHRI. MARUDHU PANDIAN, ADDL. CIT. /DATE OF HEARING : 10-09-2018 ! /DATE OF PRONOUNCEMENT : 11-09-2018 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAI NST AN ORDER DATED 24.08.2017 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI, IT IS AGGRIEVED ON DENIAL OF EXEMPTION CL AIMED BY IT U/S.10(38) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON THE LONG TERM CAPITAL GAINS ON SALE OF CERTAIN SHARES. ITA NO.2660 /CHNY/2017. :- 2 -: 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURI NG THE RELEVANT PREVIOUS YEAR ASSESSEE HAD RECEIVED SALE C ONSIDERATION OF D18,37,526/- ON SALE OF 1,30,000 EQUITY SHARES OF M/S. ESSAR INDIA LIMITED. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD PURCHASED THESE SHARES ON 28.06.2009 AND HELD IT AS INVESTMENT. LD. AUTHORISED REPRESENTATIVE, SUBMITTED THAT THE G AINS OF D18,26,544/- ARISING FROM SALE OF THESE SHARES, WH ICH WERE HELD FOR MORE THAN TWELVE MONTHS, WAS NOT ALLOWED EXEMPTI ON U/S.10(38) OF THE ACT. ACCORDING TO HIM, WHOLE OF THE CONSIDERAT ION RECEIVED ON SALE WAS TREATED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. AS PER THE LD. AUTHORISED REPRESENTATIVE, LOWER AU THORITIES DISBELIEVED THE PURCHASE AND SALE OF THE SHARES OF M/S. ESSAR I NDIA LTD RELYING ON THE STATEMENTS OF SHRI. BIKAS SUREKA, SHRI. ANIL K HEMKA, SHRI. AMIT SARAOGI, SHRI. SAURAJ JHUNJHUNWALA, SHRI. PRAVIN AG ANVAL, SHRI. PAWAN KAYAN, SHRI. ANAND RATHI, SHRI. ANIL AGANVAL, SHRI. ABHISHEK KAYAN AND SHRI. SAJENDRA MOOKIM. ACCORDING TO LD. AUTHORISED REPRESENTATIVE, LOWER AUTHORITIES ALSO BELIEVED THE STATEMENTS GIV EN BY VARIOUS PERSONS PURSUANT TO SURVEYS UNDER SECTION 133A OF THE ACT CONDUCTED IN THE PREMISES OF M/S. GATAWAY FINANCIAL SERVICE S LTD AND M/S. DYNAMIC EQUITIES PVT. LTD. FURTHER, ACCORDING TO LD. AUTHORISED REPRESENTATIVE, RECORDS IMPOUNDED DURING THESE SURV EYS WERE ALSO ITA NO.2660 /CHNY/2017. :- 3 -: CONSIDERED BY THE LD. ASSESSING OFFICER. HOWEVER , AS PER THE LD. AUTHORISED REPRESENTATIVE, NONE OF THESE STATEMENTS AND RECORDS WERE GIVEN TO THE ASSESSEE NOR SUCH PERSONS MADE AVAILAB LE FOR A CROSS EXAMINATION. CONTENTION OF THE LD. AUTHORISED REPR ESENTATIVE WAS THAT STATEMENTS RECORDED BEHIND THE BACK OF THE ASSESSEE COULD NOT HAVE BEEN RELIED ON BY THE REVENUE FOR FASTENING A TAX L IABILITY ON THE ASSESSEE. AS PER THE LD. AUTHORISED REPRESENTATIVE , LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER TREATING THE TRANSACTIONS TO BE THAT OF PEN NY STOCK COMPANIES RELYING ON THE REPORTS OF INVESTIGATION WING OF INC OME TAX DEPARTMENT, KOLKATA. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE PLACIN G RELIANCE ON A DECISION OF A CO-ORDINATE BENCH IN THE CASE OF HEERACHAND KANUNGA VS. ITO, (ITA NOS.2786 & 2787/CHNY/2017 , DATED 03.05.2018) SUBMITTED THAT THE ISSUE MIGHT BE REQ UIRED TO BE REMITTED BACK TO THE LD. ASSESSING OFFICER, SO THA T DUE PROCESS OF LAW IS FOLLOWED. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS OF THE AUTHORITIES BELOW. CLAIM OF THE ASSES SEE FOR EXEMPTION U/S.10(38) OF THE ACT, ON ALLEGED LONG TERM CAPI TAL GAINS ARISING ON SALE OF SHARES OF M/S.ESSAR INDIA LTD WAS DISALL OWED BY THE LD. ITA NO.2660 /CHNY/2017. :- 4 -: ASSESSING OFFICER CONSIDERING THIS TO BE A PENNY ST OCK COMPANY AND ALLEGING ASSESSEES FAILURE TO BRING EVIDENCE WI TH REGARD TO THE GENUINENESS OF THE TRANSACTIONS. IT IS NOT DISPUTED BY THE LD. DEPARTMENTAL REPRESENTATIVE THAT REVENUE HAD RELIE D ON VARIOUS STATEMENTS RECORDED FROM VARIOUS PERSONS AND RECORD S IMPOUNDED DURING SURVEYS U/S.133A OF THE ACT MENTIONED AT P ARA 2 ABOVE FOR DISBELIEVING THE SALE OF SHARES. THE ASSESSMENT OR DER REFERS TO STATEMENTS OF OF MR. BIKAS SUREKA, MR. ANIL KHEMKA, MR. AMIT SARAOGI, MR. SAURAJ JHUNJHUNWALA, MR. SAJENDRA MOOKIM. THES E WERE ALL RELIED ON BY THE LD. ASSESSING OFFICER FOR DISBELIEVING TH E CLAIM OF SALE IN THE SHARES. IT IS ALSO NOT DISPUTED THAT STATEMENTS R ECORDED FROM THESE PERSONS AND RECORDS RELIED ON BY THE REVENUE FOR D ISBELIEVING THE CLAIM OF THE SALE OF SHARES, WERE NOT PUT TO THE AS SESSEE. UNDISPUTEDLY, THE SALE OF SHARES WERE THROUGH RECOG NIZED STOCK EXCHANGE AND THROUGH A RECOGNIZED STOCK BROKER. IN A SIMILAR CASE OF HEERACHAND KAUNGA (SUPRA) DECIDED BY A CO-ORDINATE BENCH, WHERE ALSO SALE OF SHARES IN WHAT IS CALLED AS PENNY ST OCK COMPANIES WERE DISBELIEVED BY THE REVENUE FOR ALMOST SIMILAR REASO NS, THIS TRIBUNAL HAD HELD AS UNDER AT PARA 9 TO 12 OF ITS ORDER D ATED 03.05.2018. 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMITTEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT TO BE DONE ON THE BASIS OF MERE ITA NO.2660 /CHNY/2017. :- 5 -: SUSPICION. IT HAS TO BE SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE S IDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADMITTED 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 BENEFICIARIES. HOWEVER, THIS STATEMENT GIVEN BY SHRI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE FOR CROSS- EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROS S- EXAMINATION, THE STATEMENT REMAINS MERE INFORMATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMENT. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTALING INTO RS.3,00,000/-. THE ASSESSEE CLA IMS TO HAVE PAID CASH FOR THE PURCHASE 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 THE SHARE CERTIFICATES AND THE SH ARE TRANSFER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A(3)? WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF THE ASSESSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSACTION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANSFERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE? TO WHOM WERE THE SHARES SOLD DURING THE ASSESSMENT YEARS 2010-11 & 2011- 12? WHEN WERE THE CHEQUES RECEIVED BY THE ASSESSEE? FROM WHOM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH DEPOSIT IMMEDIATELY PRIOR TO THE ISSUING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE 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 THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL, KOLKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE ASSESSEE IN GOOD F AITH ITA NO.2660 /CHNY/2017. :- 6 -: HAS PURCHASED THE SHARES OF M/S.BPL FROM A SUB- BROKER IN HIS FRIENDS CIRCLE. WHAT IS THE TRUE NAT URE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTUALL Y PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESSION OF THE SHARES IN ITS PHYSICAL 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 SHARES. IF THIS IS SO, DOES THE DEMAT A CCOUNT SHOW SUCH TRANSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRANSACTION. THUS, CLEA RLY THE FACTS REQUIRED FOR ADJUDICATING THE APPEALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SHOW THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARES OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FLOWN 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 VARIOUS DATES. THEN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFER ENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCHASED 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 CLEAR LY BE A CASE WHERE THE SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKER OF THE STOCK EXCHANGE O N A DAILY BASIS AND OBVIOUSLY IT WOULD HAVE 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-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE 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 THE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GIVEN TO THE ASSESSEE 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 GAIN S IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE ITA NO.2660 /CHNY/2017. :- 7 -: EXEMPTION U/S.10(38) BY PROVIDING ALL SUCH EVIDENCE S AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCING THE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, FRIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. IN LINE WITH THE ABOVE, WE ARE OF THE OPINION THAT QUESTION REGARDING GENUINENESS OF THE CLAIM OF LONG TERM CAPITAL GAINS REQUIRES TO BE RESTORED TO THE LD. ASSESSING OFFICER FOR RECONSIDE RATION AFTER GRANTING ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE. REVENUE HAS TO FURNISH TO THE ASSESSEE ALL THE STATEMENTS RELI ED ON BY THEM. USEFUL REFERENCE MAY BE MADE TO THE LAW LAID DOWN B Y HONBLE APEX COURT IN THE CASE OF CIT VS. SUNITA DHADDA, SLP (CIVIL ) NO.9432/2018, DATED 28.03.2018 , WHILE AFFIRMING A JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS.SMT. SUNITA DHADDA , WHERE THE IMPORTANCE OF PROVIDING AN OPPORTUNITY TO CROSS EXAMINE THE WITNESS HAS BEEN STRESSED. THEIR LORDS HIP HELD THAT THIS WAS AN IMPORTANT CONSTITUENT OF NATURAL JUSTICE. ONLY AFTER ALL THE STEPS REQUIRED UNDER LAW IS COMPLETE, IT CAN BE AS CERTAINED WHETHER CLAIM OF CAPITAL GAINS WAS BOGUS OR NOT. WE THEREFO RE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ITA NO.2660 /CHNY/2017. :- 8 -: 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 11TH DAY OF SEPT EMBER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 11TH SEPTEMBER, 2018 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF