MADHU V JHAVER, CHENNAI V. DCIT NON CORPORATE CIRCLE 9(1), CHENNAI

ITA 2966/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 2958 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 26-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: F C JAIN; V S JAYAKUMAR
• Keywords: Unexplained cash credit; Salary income; Share purchase agreement; Principle of natural justice; Additional evidence; Wrong claim; Scheme of amalgamation; Benefit of exemption; Penny stocks; Capital Gains
• Section: 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI , . , % BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER / I.T.A. NO.2966/CHNY/2018 /ASSESSMENT YEAR: 2014-15 MRS. MADHU V JHAVER, 18/19, BAWA ROAD, ALWARPET, CHENNAI-600 018. VS THE DEPUTY COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 9(1), CHENNAI-34. PAN:AAQPJ2403E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.V.S.JAYA KUMAR, ADVOCATE & MR.F.C.JAIN, CA /RESPONDENT BY : MR. SRIDHAR DORA, JCIT /DATE OF HEARING : 06.03.2019 /DATE OF PRONOUNCEMENT : 06.03.2019 / O R D E R PER S.JAYARAMAN, AM: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-10, CHENNAI, IN ITA NO. 104 /17-18/CIT(A)-10 DATED 29.08.2018 FOR THE ASSESSMENT YEAR 2014-15. 2. MRS. MADHU V JHAVER, THE ASSESSEE IS AN INDIVIDUAL DERIVING SALARY INCOME AND INCOME FROM CAPITAL GAINS. IN TH E ASSESSMENT PROCEEDINGS. THE AO HAD NOTICED THAT THE ASSESSEE H AD PURCHASED L0,000 SHARES OF M/S. TRANSCEND COMMERCE LTD. DURIN G THE F.Y. 2012-13 ON 25.08.2012 FOR RS.1,00,000/- @ 10/- PER SHARE OFF MARKET FROM ONE 2 ITANO.2966/CHNY/2018 M/S. JINTAN VANIJYA PVT LTD. THE COMPANY M/S. TRANS CEND COMMERCE LTD. WAS OBSERVED TO HAVE BEEN AMALGAMATED SUBSEQUE NTLY WITH M/S. SRK INDUSTRIES LTD. IN A SCHEME OF AMALGAMATION APP ROVED BY THE HONBLE HIGH COURT AND THE ASSESSEE WAS ALLOCATED 22,200 SHARES OF M/S. SRK INDUSTRIES LTD. IN THE RATIO 100:222 IN LI EU OF 10,000 SHARES OF M/S. TRANSCEND COMMERCE LTD. HELD BY THE ASSESSEE. SUBSEQUENTLY, IT WAS NOTICED THAT M/S. SRK INDUSTRIES LTD. HAD REDUC ED ITS SHARE CAPITAL FROM 10/- PER SHARE TO 5/- PER SHARE. THE SHARES ALLOTTED BY M/S. SRK INDUSTRIES LTD. WERE NOTED TO HAVE BEEN SOLD BY THE ASSESSEE DURING THE F.Y. 2013-14 THROUGH M/S. BMA WEALTH CREATORS LTD., FOR A TOTAL CONSIDERATION OF RS. 78,36,183/. THE ASSESSEE DISC LOSED LTCG ON THE SALE OF THESE SHARES TO THE TUNE OF RS.77,40,528/- IN THE RETURN AND CLAIMED THE SAME AS EXEMPT U/S. 10(38) . THE AO E XAMINED THE ENTIRE TRANSACTIONS IN THE BACKGROUND OF INFORMATION RECEI VED FROM DIT(INV) KOLKATA THAT THE SAID SHARES TRADED BY THE ASSESSEE WERE PENNY STOCKS AND THAT THE ASSESSEE WAS ONE OF THE BENEFICIARIES OF TRADING IN PENNY STOCKS AND WAS CLAIMING BOGUS LONG TERM CAPITAL GAI NS. UPON SUCH EXAMINATION OF FACTS AND ANALYSIS THEREOF, THE AO HELD THAT THE ASSESSEE HAD DELIBERATELY ENTERED INTO A SHAM TRA NSACTION OF PURCHASE AND SALE OF BOGUS SHARES WITH FULL KNOWLEDGE OF SUC H TRANSACTIONS IN VIEW OF THE SUBSTANTIAL GAINS SHOWN ON THE SALE OF SUCH PENNY STOCKS AND THAT TOO WITHIN A SHORT PERIOD SO AS TO CONVERT THE UNACCOUNTED 3 ITANO.2966/CHNY/2018 MONEY INTO ACCOUNTED MONEY IN THE GUISE OF EXEMPT C APITAL GAINS. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE ENTI RE SALE VALUE AS INCOME OF THE ASSESSEE AS AN UNEXPLAINED CASH CRE DIT U/S.68 AND COMPLETED THE ASSESSMENT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE LD CIT(A) DISMISSED T HE APPEAL. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL WITH TH E FOLLOWING GROUNDS:- 1. THE COMMISSIONER OF INCOME TAX (A)- 10 AND THE DEPUTY COMMISSIONER OF INCOME TAX NON-CORPORATE CIRCLE 9 ( 1), CHENNAI HAVE ERRED IN TREATING AN AMOUNT OF RS. 80,28,170/- AS UNEXPLAINED CASH CREDIT U/S 68 OF IT ACT. THE SALE CONSIDERATIO N FOR SRK INDUSTRIES LTD. IS RS. 78,36,184/- ONLY AND DENYING EXEMPTION U/S 10(38) TO THE TUNE OF RS. 77,36,184/- 2. THE ORDER OF THE DCLT, NON-CORPORATE CIRCLE 9 (1 ), CHENNAI IS AGAINST THE FACTS OF THE CASE, THE PROVISIONS OF LA W, AND IS UNREASONABLE AND PERVERTED. 3. THE ASSESSING OFFICER AND THE CIT(A)- 10 OUGHT TO HAVE APPRECIATED THE FACT THAT THE APPELLANT IS A BONAFI DE INVESTOR AND HAS CLAIMED THE EXEMPTION U/S 10(38) AFTER SATISFYING A LL THE CONDITIONS. 4. ALL THE EVIDENCES IN THE FORM OF PURCHASE AND SA LE CONTRACTS OF SHARES AND D-MAT ACCOUNT AND BANK ACCOUNT ETC. AND EXPLANATION OFFERED BY THE APPELLANT ARE BRUSHED ASIDE WITHOUT FINDING ANY FAULT WITH ANY OF THEM BY BOTH AUTHORITIES. 5. THE AO AND THE CIT(A)- 10 HAVE FAILED TO PROVIDE THE EVIDENCES COLLECTED BY THE DEPT. BEHIND THE BACK OF THE APPEL LANT FOR HER REBUTTAL. 6. THE DCIT, NON-CORPORATE CIRCLE 9(1) AND THE CIT( A)- 10 BOTH HAVE IGNORED THE EXPLANATION GIVEN BY THE APPELLANT AS T O WHY THIS RECEIPT SHOULD NOT BE TREATED AS UNEXPLAINED CASH CREDIT U/ S 68. 7. THE ORDERS OF THE DCIT AND THE CIT(A)- 10 ARE BA SED ON THE CONJUNCTURE & SURMISE AND NOT ON THE FACTS & EVIDEN CE. 8. FOR THESE AND OTHER GROUNDS OF APPEAL TO BE ADDU CED AT THE TIME OF HEARING, THE APPELLANT PRAYS YOUR LEARNED GOOD SELF TO KINDLY DELETE THE ADDITION MADE U/S 68 TO THE TUNE OF RS. 80,28,170/- AND DIRECT THE AO TO ALLOW THE CLAIM OF THE APPELLANT U/S 10(38) TO T HE TUNE OF RS. 4 ITANO.2966/CHNY/2018 77,36,184/- OR TO PASS SUCH OTHER ORDER TO RENDER J USTICE TO THE APPELLANT UNDER THE CIRCUMSTANCES. 3. THE LD. AR FILED AN AFFIDAVIT SUBMITTING THAT A NNUAL REPORT OF M/S. SRK INDUSTRIES LTD. FOR THE FINANCIAL YEAR 2011-12 & 2012-13 IS FILED BEFORE THIS TRIBUNAL FOR THE FIRST TIME, AS THE ASS ESSEE COULD NOT GET COPY OF THE SAME EARLIER. SINCE THESE REPORTS WERE NO T FILED BEFORE THE LOWER AUTHORITIES, LD. AR PLEADED TO ADMIT THEM AS ADDITI ONAL EVIDENCES AND RENDER JUSTICE. 3.1 WE HEARD THE RIVAL SUBMISSIONS AND IN THE INTER ESTS OF JUSTICE, ADMIT THE ADDITIONAL EVIDENCE. 4. THE LD. AR SUBMITTED THAT THE ASSESSEE, AN INDIV IDUAL, WAS DERIVING INCOME FROM SALARY AND LTCG. THE ASSES SEE HAD CLAIMED THE BENEFIT OF EXEMPTION U/S.10(38) IN RESPECT OF SALE OF SHARES OF M/S. SRK INDUSTRIES LTD. THROUGH M/S. BMA WEALTH CREATOR S LTD. THE AO EXAMINED THE ENTIRE TRANSACTIONS IN THE BACKGROUND OF INFORMATION RECEIVED FROM DIT (INV) KOLKATA AND HELD THAT THE S AID SHARES TRADED BY THE ASSESSEE WERE PENNY STOCKS, THE ASSESSEE WAS ONE OF THE BENEFICIARIES OF TRADING IN PENNY STOCKS AND WAS CL AIMING BOGUS LONG TERM CAPITAL GAINS ETC. THE ASSESSEE WAS NOT FUR NISHED WITH THOSE DETAILS. THE LD. CIT(A) FAILED TO APPRECIATE THAT ALL THE CONDITIONS REQUIRED FOR CLAIMING EXEMPTION UNDER SECTION 10( 38) HAD BEEN MET BY THE ASSESSEE AND THEREFORE THE LD CIT(A) HAS ERRE D IN UPHOLDING THE 5 ITANO.2966/CHNY/2018 REJECTION OF CLAIM OF EXEMPTION UNDER SECTION 10(38 ) ON THE LONG TERM CAPITAL GAINS ON SALE OF SHARES ETC. PER CONTRA, T HE LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND LD.CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE T HROUGH RELEVANT MATERIAL. ON THE ISSUE OF CLAIM OF EXEMPTI ON U/S.10(38) IN RESPECT OF LONG TERM CAPITAL GAINS, IT IS NOTICED THAT THE ASSESSEE HAS NOT BEEN GIVEN ANY OPPORTUNITY TO PROVE THE GENUINE NESS BUT THE ASSESSMENT HAS BEEN MADE BASED ON THE EVIDENCES COL LECTED BY THE REVENUE IN THE COURSE OF THE INVESTIGATION CONDUCTE D BY THEM ON BROKERS / SHARE BROKING ENTITIES ETC. THIS IS NOT P ERMISSIBLE. THIS BEING SO, IN THE INTEREST OF NATURAL JUSTICE, THE ISSUE O F THE GENUINENESS OF THE TRANSACTIONS REQUIRE RE-ADJUDICATION. SINCE, THE RIGHT TO EXEMPTION MUST BE ESTABLISHED BY THOSE WHO SEEK IT, THE ONUS THERE FORE 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 AUTHO RITIES PROPER MATERIALS WHICH WOULD ENABLE TO COME TO A CONCLUSIO N. (35 ITR 312) (SC). THUS, THE A O MUST KEEP IN MIND THAT THE ONU S OF PROVING THE EXEMPTION RESTS ON THE ASSESSEE. IF THE A O DOES H AVE ANY EVIDENCE TO THE CONTRARY, IT IS TO BE PUT TO THE ASSESSEE FOR HIS REBUTTAL. THE INTERNAL COMMUNICATIONS OF THE REVENUE ARE EVIDENCES FOR DRA WING AN OPINION ON POSSIBLE WRONG CLAIMS BUT THEY ARE NOT THE FINAL EVIDENCE. FURTHER, 6 ITANO.2966/CHNY/2018 PERUSAL OF ASSESSEES CASE SHOWS THAT IT IS SIMILAR TO THE FACTS IN THE CASE OF SHRI HEERACHAND KANUNGA REFERRED TO SUP RA. THE RELEVANT PORTIONS FROM THAT ORDER IS EXTRACTED AS UNDER :- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADM ITTEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT T O BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO BE SUPPOR TED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE A SSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI AS HOK KUMAR KAYAN WHO HAS ADMITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL GAINS TO HIS CLIENTS. THE SAID SHRI ASHOK K UMAR KAYAN ALSO ALLEGEDLY SEEMS TO HAVE PROVIDED THE ASSESSEE S NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STA TEMENT 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-EXA MINATION. IN THE ABSENCE OF OPPORTUNITY OF CROSS-EXAMINATION, THE STATEMENT REMAINS MERE INFORMATION AND SUCH INFORMA TION 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 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 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 PROVISION S OF SEC.40A(3)? WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF THE ASSESSEE ON 24.04.2008? DID THE ASSESSEE TR AVELLED TO KOLKATA? HOW WAS THE TRANSACTION DONE? WHO APPLIE D FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? W HEN 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 TH E 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 , KOLKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE ASSESSEE IN GOOD FAITH HAS PURCHASED THE SHARES OF M/S.BPL 7 ITANO.2966/CHNY/2018 FROM A SUB-BROKER IN HIS FRIENDS CIRCLE. WHAT IS T HE TRUE NATURE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTU ALLY PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESS ION OF THE SHARES IN ITS PHYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE ASSESSEE IS AN INVE STOR AND HAS BEEN REGULARLY TRADING IN SHARES. IF THIS IS SO, D OES THE DEMAT ACCOUNT SHOW SUCH TRANSACTIONS BEING DONE BY THE AS SESSEE OR IS THIS THE ONLY ONE OF TRANSACTION. THUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING THE APPEALS ARE NOT FORTH COMING. THERE IS NO EVIDENCE WHATSOEVER TO SHOW THAT THE AS SESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS B ECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARE S OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSS ESSION OF THE SHARES FOR MORE THAN 12 MONTHS HAVE TO BE PROVE D 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. THEN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFER ENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCH ASED TOGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M /S.BPL COMPANY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPAN Y 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 WHERE THE SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKER OF THE STOCK EXCHANGE ON A DAIL Y BASIS AND OBVIOUSLY IT WOULD HAVE DRAWN ATTENTION. THIS BEIN G SO, AS THE FACTS ARE NOT COMING OUT OF THE ASSESSMENT ORDER NO R 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 RES TORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING T HE 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 A SSESSEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITA L GAINS IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMP TION U/S.10(38) BY PROVIDING ALL SUCH EVIDENCES AS REQUI RED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCING T HE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN THE TRANSA CTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INC LUDE THE SUB-BROKER, FRIEND AND THE BROKER THROUGH 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 ST ATISTICAL PURPOSES. 8 ITANO.2966/CHNY/2018 6. RESPECTFULLY FOLLOWING THE ABOVE ORDER, THE ISSU E OF EXEMPTION IN THIS APPEAL IS RESTORED BACK TO THE FILE OF THE A O FOR RE-ADJUDICATION ON THE LINES INDICATED ABOVE. THEREFORE, THE AO SHALL REQUIRE THE ASSESSEE; TO ESTABLISH WHO, WITH WHOM, HOW AND IN WHAT CIRCUMSTANCES THE IMPUGNED TRANSACTIONS WERE CARRIED OUT ETC., TO PROVE THAT THE IMPUGNED TRANSACTIONS ARE ACTUAL , GENUINE ETC. THE ASSESSEE SHALL COMPLY TO THE A OS REQUIREMENTS AS PER LAW. ON A PPRECIATION OF ALL THE ABOVE ASPECTS, THE AO WOULD DECIDE THE MATTER IN AC CORDANCE WITH LAW. THE AO IS ALSO FREE TO CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT, BUT SHALL FURNISH ADEQUATE OPPORTUNITY TO THE ASSESSE E ON THE MATERIAL ETC TO BE USED AGAINST IT AND DECIDE THE MATTER IN ACCO RDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MARCH, 2019 AT CHENNAI SD/- SD/- ( ) ( . ) (GEORGE MATHAN) (S.JAYARAMAN) ( ! / JUDICIAL MEMBER) ( ! / ACCOUNTANT MEMBER) /CHENNAI, $ /DATED 06 TH MARCH, 2019 SOMU () *) /COPY TO: 1. APPELLANT 2. RESPONDENT 3. + ( ) /CIT(A) 4. + /CIT 5. ) / /DR 6. 2 /GF