Heerachand Lalitha Devi, CHENNAI V. ITO Non Corporate Ward 5(2), CHENNAI

ITA 2818/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9263 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 01-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABJIT RAKSHIT
• Assessee Lawyers: NIRANJANI SHRI R PADMANABHAN
• Keywords: Share purchase agreement; Earning of tax free income; Wrong claim
• Section: 68; 12; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , !' , # $ BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBE R ' ./ ITA NO.2818/CHNY/2018 !% /ASSESSMENT YEAR: 2013-14 SMT. HEERACHAND LALITHA DEVI, NO.17, PERUMAL MUDALI STREET, SOWCARPET, CHENNAI 600 079. VS. INCOME TAX OFFICER, NON-CORPORATE WARD-5(2), CHENNAI. [PAN: AABPH 3049M] ' ./ ITA NO.2817/CHNY/2018 !% /ASSESSMENT YEAR: 2015-16 SMT. MANJU DEVI, NO.10/2, DEVARAJA MUDALI STREET, PARK TOWN, CHENNAI 600 003. VS. INCOME TAX OFFICER, NON-CORPORATE WARD-5(3), CHENNAI. [PAN: AHXPM 0184F] ' ./ ITA NO.2816/CHNY/2018 !% /ASSESSMENT YEAR: 2015-16 SHRI MAHENDRA KUMAR BHANDARI, NO.10/2, DEVARAJA MUDALI STREET, PARK TOWN, CHENNAI 600 003. VS. INCOME TAX OFFICER, NON-CORPORATE WARD-5(3), CHENNAI. [PAN: AAFPB 8526M] ( & /APPELLANT) ( '(& /RESPONDENT) & ) * / APPELLANT BY : MS. NIRANJANI, ADVOCATE SHRI R.PADMANABHAN, C.A '(& ) * /RESPONDENT BY : SHRI ABJIT RAKSHIT, JCIT + ! ) ,# /DATE OF HEARING : 18.06.2019 -.% ) ,# / DATE OF PRONOUNCEMENT : 20.06.2019 ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 2 -: / / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE ABOVE ASSESSEES HAVE FILED THESE APPEALS AGAINS T THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, CHEN NAI, IN ITA NO.357/CIT(A)-5/2017-18 DATED 27.06.2018 FOR AY 201 3-14 AND IN ITA NO.250 & 251/CIT(A)-5/2017-18 DATED 09.08.2017 & 31 .08.2018 FOR ASSESSMENT YEAR (AY) 2015-16, RESPECTIVELY. 2. SINCE, THE COMMON ISSUES ARE INVOLVED IN THESE A PPEALS, THEY ARE HEARD TOGETHER AND BEING DISCUSSED TOGETHER FOR CON VENIENCE SAKE. 3. SMT. HEERACHAND LALITHA DEVI, SMT. MANJU DEVI AN D SHRI MAHENDRA KUMAR BHANDARI HAVE PURCHASED SHARES OF BA KRA PRASTISTHAN LTD., KAILASH AUTO FINANCE LTD., AND GC SMC SECURIT IES LTD., RESPECTIVELY, BY CASH FOR A NOMINAL PRICES, OFF MAR KET FROM CERTAIN BROKERS. SUBSEQUENTLY, EACH OF THEM SOLD THOSE SHA RES ON HUGE PRICE AND EARNED THE HUGE PROFIT, ADMITTED LONG TERM CAPI TAL GAIN AND CLAIMED IT AS AN EXEMPT INCOME U/S. 10(38) OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT). THE RESPECTIVE ASSESSING OFFICER (AO) REOPENED THE ASSESSMENT ON THE BASIS OF EXTERNAL INFORMATION/SEL ECTED THE CASE FOR SCRUTINY ON THE BASIS OF SUSPICIOUS SALE TRANSACTIO N IN SHARES (PENNY STOCK) REPORT AND AS PER THE ITS DATA, AS THE CASE MAY BE. DURING THE REASSESSMENT/ASSESSMENT, THE RESPECTIVE AO ISSUED A LETTER TO THE SELLER ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 3 -: OF SHARES WHICH WAS RETURNED BY THE POSTAL AUTHORIT IES NON KNOWN. THEREAFTER, THE RESPECTIVE AO CONSIDERING THE RESPE CTIVE ASSESSEES EXPLANATION, MATERIAL ETC. AND ON THE BASIS OF INVE STIGATION DONE BY THE REVENUE IN WHICH ONE OF THE BROKERS NAMED THE RESPE CTIVE ASSESSEE AS A BENEFICIARY OF BOGUS LTCG OR NAMED THE SHARES HEL D BY THE COMPANY AS A PAPER/SALE/BOGUS COMPANY ETC. AND AFTER ANALYZ ING THESE TRANSACTIONS IN DETAIL, TREATED, INTER ALIA, THAT T HE TRANSACTIONS ARE NOT GENUINE, NOT A BONAFIDE ONE BUT AN ENGINEERED TRANS ACTION ETC. THEREFORE, ASSESSED THE ENTIRE SALE CONSIDERATION AS AN UNEXPL AINED CREDIT U/S. 68 OF THE ACT AND REFUSED EACH OF THE ASSESSEES EXEMP TION CLAIM U/S. 10(38) OF THE ACT. 4. AGGRIEVED EACH OF THE ABOVE ASSESSEE CARRIED THE MATTER ON APPEAL BEFORE THE CIT(A). THE LD. CIT(A), AFTER CON SIDERING EACH OF THE ASSESSEES PLEA AND RELYING ON THE DECISION IN THE CASE OF ITO, 19(3)(4), MUMBAI VS. SHAMIM M. BHARWANI REPORTED IN 69 TAXMAN N.COM 65 (MUM- TRIB.) AND IN THE CASE OF SANJAY BIMALCHAND JAIN VS . PCIT-1, NAGPUR REPORTED IN 89 TAXMANN.COM 196 (BOM.) DISMISSED THE APPEAL ON EACH OF THE ABOVE ASSESSEE. AGGRIEVED AGAINST THOSE ORDERS , THE ABOVE ASSESSEES HAVE FILED THE ABOVE APPEALS BEFORE THE T RIBUNAL. 5. THE ONLY GROUND ON WHICH THE AR ARGUED THESE CAS ES ARE ON THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY THE RESPECTIVE ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 4 -: AO IN TREATING THE PURCHASE AND SALE OF SHARES BY T HE RESPECTIVE ASSESSEE, AS PENNY STOCK TRANSACTION. ON THE ISSUE U/S 10(38), THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NOT BEEN GIVEN A FAIR OPPORTUNITY BY THE LOWER AUTHORITIES AND THEY CONCLUDED THE ASSESS MENT BASED ON THE DEPARTMENTS ACTION CARRIED OUT ELSEWHERE. PER CONT RA, THE LD DR SUBMITTED THAT ALL THESE ASSESSEES HAVE CLAIMED DED UCTION U/S 10 (38) BUT THEY HAVE NOT PROVED THE GENUINENESS, THEREFORE , REITERATING THE FACTS AND CIRCUMSTANCES OF EACH OF THIS CASE FROM THE ORD ERS OF THE LOWER AUTHORITIES AND RELYING ON THIS TRIBUNAL DECISION I N THE CASE OF SHRI HEERACHAND KANUNGA, FOR ASSESSMENT YEARS 2010-11 & 2011-12 IN ITA NOS. 2786 & 2787/MDS/2017 DATED 03.05.2018, THE LD. DR PLEADED THAT THESE APPEALS BE DECIDED ACCORDINGLY. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT EACH OF THE ABOVE THE ASSESSEE HAS NOT BEEN GIVEN A FAIR OP PORTUNITY TO PROVE THE GENUINENESS BUT THE ASSESSMENT HAS BEEN MADE BA SED ON THE EVIDENCES COLLECTED BY THE REVENUE IN THE COURSE OF THE INVESTIGATION CONDUCTED BY THEM ON BROKERS / SHARE BROKING ENTITI ES ETC. THIS IS NOT PERMISSIBLE. THIS BEING SO, IN THE INTERESTS OF NAT URAL JUSTICE, THE ISSUE OF THE GENUINENESS OF THE TRANSACTIONS REQUIRE RE-ADJU DICATION. SINCE, THE RIGHT TO EXEMPTION MUST BE ESTABLISHED BY THOSE WHO SEEK IT, THE ONUS THEREFORE LIES ON THE ASSESSEE. IN ORDER TO CLAIM T HE EXEMPTION FROM PAYMENT OF INCOME TAX, THE ASSESSEE HAD TO PUT BEFO RE THE INCOME TAX ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 5 -: AUTHORITIES PROPER MATERIALS WHICH WOULD ENABLE THE M TO COME TO A CONCLUSION. (35 ITR 312 (SC)).THUS, THE A O MUST KE EP IN MIND THAT THE ONUS OF PROVING THE EXEMPTION RESTS ON THE ASSESSEE . IF THE AO DOES HAVE ANY EVIDENCE TO THE CONTRARY, IT IS TO BE PUT TO THE ASSESSEE FOR HIS REBUTTAL. THE INTERNAL COMMUNICATIONS OF THE REVENU E ARE EVIDENCES FOR DRAWING AN OPINION ON POSSIBLE WRONG CLAIMS BUT THE Y ARE NOT THE FINAL EVIDENCE. FURTHER, PERUSAL OF THE ABOVE ASSESSEE S CASES SHOW THAT THEY ARE SIMILAR TO THE FACTS IN THE CASE OF SHRI HEERACHAND KANUNGA , A DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL MADE, FOR ASSESSMENT YEARS 2010-11 & 2011-12 IN ITA NOS. 2786 & 2787/MDS /2017 DATED 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 BENEFICIARIES. HOWEVER, THIS STATEMENT GIVEN BY SH RI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF A SSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVI DED TO THE ASSESSEE FOR CROSS-EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROSS-EXAMINATION, THE STATEMENT REMAINS MERE INFOR MATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMEN T. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PU RCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTAL ING INTO RS.3,00,000/-. THE ASSESSEE CLAIMS TO HAVE PAID CAS H FOR THE PURCHASE OF THESE SHARES. THE PRIMARY QUESTION WOU LD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BE EN DONE IN ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 6 -: KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHARE CERTIFICATES AND THE SHARE TRANS FER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A (3)? WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF TH E 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 TRANS FERRED 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 WH OM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH D EPOSIT IMMEDIATELY PRIOR TO THE ISSUING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE SHARES OF THE ASSES SEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATE S THAT HE HAS 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 MENTIONE D THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRAD ING IN SHARES. IF THIS IS SO, DOES THE DEMAT ACCOUNT SHOW SUCH TRA NSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRA NSACTION. THUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING THE APP EALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SH OW THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTH S. THIS IS BECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND T HE SHARES OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOU NT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSS ESSION OF THE SHARES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHCOMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS S UBMITTED BY THE LD.AR THAT THE DEMAT WAS DONE ON VARIOUS DATES. TH EN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFER ENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCHASED T OGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M/S.BPL COMPA NY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD T O THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/- TO RS.35 2/- IN A PERIOD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE TH E SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKER OF THE STOCK EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WOULD HAVE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE NOT COMING OUT OF THE AS SESSMENT ORDER ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 7 -: 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 M UST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRA NTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE AND W E 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 GI VEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVID ED TO THE ASSESSEE FOR CROSS-EXAMINATION. HOWEVER, THE ASSES SEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITAL GAIN S IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10 (38) BY PROVIDING ALL SUCH EVIDENCES 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 PURC HASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, F RIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE IN ITA NOS.2786 & 2787/CHNY/2017 ARE PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. 7. RESPECTFULLY FOLLOWING THE ABOVE ORDER, ON THE F ACTS AND CIRCUMSTANCES OF THESE CASES, WE DEEM IT FIT TO R EMIT THE ISSUE OF EXEMPTION IN THESE APPEALS BACK TO THE FILE OF THE RESPECTIVE AO FOR RE- ADJUDICATION ON THE LINES INDICATED ABOVE. THEREFOR E, THE AO CONCERNED SHALL REQUIRE THE ASSESSEE; TO ESTABLISH WHO, WITH WHOM, HOW AND IN WHAT CIRCUMSTANCES THE IMPUGNED TRANSACTIONS WERE C ARRIED OUT ETC., TO PROVE THAT THE IMPUGNED TRANSACTIONS ARE ACTUAL, GE NUINE ETC. THE ASSESSEE SHALL COMPLY TO THE AOS REQUIREMENTS AS P ER LAW. ON APPRECIATION OF ALL THE ABOVE ASPECTS, THE AO WOULD DECIDE THE MATTER IN ACCORDANCE WITH LAW. THE AO IS ALSO FREE TO CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT, BUT SHALL FURNISH ADEQUATE OPPORTUNI TY TO THE ASSESSEE ON ITA NOS.2818, 2816 & 2817/CHNY/2018 :- 8 -: THE MATERIAL ETC. TO BE USED AGAINST HIM/HER, AS T HE CASE MAY BE, AND DECIDE THE MATTER IN ACCORDANCE WITH LAW. 8. SINCE, THE LD. AR HAS NOT ARGUED ON ANY OTHER GR OUND, THE OTHER GROUNDS ARE TREATED AS DISMISSED. 9. IN THE RESULT, ALL THE THREE APPEALS FILED BY EA CH OF THE ABOVE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUNE, 2019 IN CHENNAI. SD/ - SD/ - ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( . ) (S. JAYARAMAN) # /ACCOUNTANT MEMBER /CHENNAI, 0' /DATED: 20 TH JUNE, 2019 . EDN, SR. P.S / ) ',12 32%, /COPY TO: 1. & /APPELLANT 2. '(& /RESPONDENT 3. + 4, ( )/CIT(A) 4. + 4, /CIT 5. 2!56 ', /DR 6. 67 8 /GF