HARE SHANKER INVESTMENTS & TRADING COMPANY LTD., NEW DELHI V. ITO, WARD- 11(1), NEW DELHI

ITA 3085/DEL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9947 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 02-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KAPOOR
• Assessee Lawyers: SUBODH GUPTA
• Keywords: Opportunity of being heard; Principle of natural justice; Notional interest; Set aside; Capital Gains
• Section: 143(3); 142(1); 143(1); 143(2)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC BENCH, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 3085/DEL/2018 [ASSESSMENT YEAR: 2014-15] HARE SHANKER INVESTMENTS VS. ITO, WARD-11( 1), & TRADING COMPANY LTD., NEW DELHI 302, PRESS COMPLEX, E-13, ROOM NO. 412, JAWAHAR PARK, LAXMI NAGAR, C.R. BLDG., NEW DELHI DELHI 110 032 (PAN: AAACH2306M) [APPELLANT] [RESPONDENT] ASSESSEE BY: SH. SUBODH GUPTA, FCA REVENUE BY : SH. SANJAY KAPOOR, SR. DR. ORDER THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX [APPEALS]-4, NEW DELHI D ATED 16.2.2018 PERTAINING TO ASSESSMENT YEAR 2014-15 ON THE FOLLOW ING GROUNDS:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO HAS STATED AND RELIED UPON SOME MATERIAL, INVESTIGATION REPORT, STATEMENTS OF THIR D PARTIES RECORDED, WHICH WERE NEVER SHARED OR CONFRONTED TO THE ASSESSEE AND THUS THE PRINCIPLE OF NATURAL JUSTICE ARE INFRINGED AND THEREFORE THE IMPUGNED ASSESSMENT ORDER IS LIABLE TO BEQ QUASHED. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO HAS ERRED AND WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF THE DUTY TRANSACTED AND RECORDED SHARE TRADING LOSS OF RS. 13,09,876/-, WITHOUT ANY COGENT REASON OR CONTROVERTING THE ALL 2 POSSIBLE DOCUMENTARY EVIDENCES PRODUCED BY THE ASSESSEE. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO HAS FAILED TO PROVIDE ANY COGENT REASONS ARISING ON THE FACTS OF THE CASE OR THE INVESTIGATIONS CARRIED OUT BY HIM EXCEPT ON CONJECTURES DRAWING PARALLEL FROM OTHER INSTANCES WHICH DID NOT HAVE ANY LINK WITH THE TRANSACTION IN QUESTION. IV) THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT WITHOUT PREJUDICE TO EACH OTHER. V) THE ASSESSEE CRAVES TO ADD, MODIFY ANY NEW GROUND OF APPEAL OR ADDUCE ANY NEW EVIDENCE DURING THE COURSE OF APPEAL, AS MAY BE NECESSARY, FOR THE DISPOSAL OF APPEAL AND DISCHARGE OF DUE JUSTICE TO THE APPELLANT. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED ITS E-RETURN ON 22.11.2014 DECLARING AN INCOME OF RS. 4,72,740/-. THE RETURN OF THE ASSESSEE WAS PROCESSED U/S. 143(1) OF THE INCOME TA X ACT, 1961 (IN SHORT ACT). NOTICE U/S. 143(2) OF THE ACT DATED 18.9.2015 WAS SERVED UPON THE ASSESSEE AND QUESTIONNAIRE DATED 05.04.201 6 AND 12.5.2016 WERE ISSUED ALONGWITH NOTICE U/S. 142(1) OF THE ACT ASKING THE ASSESSEE TO SUBMIT THE REQUIRED INFORMATION BY 19.4.2016 AND 25.5.2016. IN RESPONSE TO THE SAME, THE AR APPEARED AND FILED THE REQUISITE DETAILS FROM TIME TO TIME WHICH WERE TAKEN INTO CONSIDERATI ON BY THE AO WHILE COMPLETING THE ASSESSMENT. 2.1 THE ASSESSEE COMPANY WAS INCORPORATED ON 10.3.2 013 AS A PRIVATE LIMITED COMPANY AND CONVERTED INTO LIMITED COMPANY ON 11.4.1996 AND ITS MAIN OBJECT WAS TO CARRY OUT THE NBFC ACTIVITIE S. THE COMPANY HAS ALSO TAKEN THE REGISTRATION FROM RBI AS NBFC COMPA NY VIDE CERTIFICATE OF REGISTRATION NO. B.14.02343 DATED 07.10.2012 IS SUED BY RBI, NEW 3 DELHI REGIONAL OFFICE. APART FROM THAT, THE ASSESSE E COMPANY IS ALSO DEALING IN SHARES. 2.2 THE DIRECTORATE OF INVESTIGATION, KOLKATA CARRI ED OUT A COUNTRY-WIDE INVESTIGATION TO UNEARTH THE ORGANIZED RACKET OF GE NERATING BOGUS ENTRIES OF LONG TERM CAPITAL GAINS (LTCG) WHICH HAS ADJUSTE D AGAINST PROFIT EARNED IN OTHER HEADS OF INCOME DURING THE YEAR. T HE BENEFICIARY HOLDS THE SHARE FOR ONE YEAR, THE STATUTORY PERIOD AFTER WHICH LTCG IS EXEMPTED U/S. 10(38) OF THE ACT. IN THE MEANTIME THE OPERAT ORS RIG THE PRICE OF THE STOCK AND GRADUALLY RISE ITS PRICE MANY TIMES, OFT EN 500 TO 1000 TIMES. THIS IS DONE THROUGH LOW VOLUME TRANSACTION INDULG ED IN BY THE DUMMIES OF THE OPERATOR AT A PRE-DETERMINED PRICE. WHEN TH E PRICE REACHES THE DESIRED LEVEL THE BENEFICIARY WHO BOUGHT THE SHARES AT A NOMINAL PRICE, IS MADE TO SELL IT TO A DUMMY PAPER COMPANY OF THE OPE RATOR. FOR THIS, UNACCOUNTED CASH IS PROVIDED BY THE BENEFICIARY WHI CH IS ROUTED THROUGH A FEW LAYERS OF PAPER COMPANIES BY THE OPERATOR AND F INALLY IS PARKED WITH THE DUMMY PAPER COMPANY THAT WILL BUY THE SHARES. 2.3 THE AO EXPLAINED THE MODUS OPERANDI IN HIS ASS ESSMENT ORDER AND FINALLY HAS WRITTEN THAT THE DIRECTORATE OF INVESTI GATION, KOLKATA INVESTIGATED TRANSACTIONS IN 84 SUCH PENNY STOCK SH ARES QUOTED ON BSE AND EXAMINED ON OATH A LARGE NUMBER OF BROKERS, DIR ECTORS OF COMPANIES THAT FINALLY PURCHASED THE SHARES, THE PROMOTERS OF PENNY STOCK COMPANIES, THE ENTRY OPERATORS WHO MANAGED THE DUMM Y COMPANIES INVOLVED IN PRICE RIGGING. THE MONEY TRAIL OF THE T RANSACTION WAS ALSO EXAMINED AND IN A LARGE NUMBER OF TRANSACTIONS TRAI L RIGHT FROM CASH DEPOSIT ACCOUNT TO THE BENEFICIARIES ACCOUNT WAS UN EARTHED. AS A RESULT OF INVESTIGATION, INDIVIDUALS WHO HAVE TAKEN SUCH ENT RY OF BOGUS LTCG/LOSS AMOUNTING TO SEVERAL CRORES HAVE BEEN IDENTIFIED. T HE AO HAS ALSO EXPLAINED THE RESULT OF ANY PROOF OF THE SAME IN HI S ASSESSMENT ORDER AND IS OF THE VIEW THAT ASSESSEE IS A ONE OF SUCH BENEF ICIARY WHO HAS PURCHASED 11000 SHARES OF M/S LUMINAIRE TECHNOLOGIE S LIMITED ON 06.05.2013 (BUT THE TRANSACTION REFLECTED IN DEMA T ACCOUNT ON 08.5.2013) FOR RS. 5,92350/- @ RS. 53.85 PER SHARE AND 300 SHARES OF 4 M/S NIKKI GLOBAL FINANCE LIMITED ON 8.7.2013 (BUT T HE TRANSACTION REFLECTED IN DEMAT ACCOUNT ON 10.7.2013) FOR RS. 2, 39,940/- @ RS. 799.8 PER SHARE DURING THE ASSESSMENT YEAR 2014-15 UNDER CONSIDERATION. THESE SHARES WERE SUBSEQUENTLY SOLD TO TWO ENTITIE S ON 21.3.2014 (BUT THE TRANSACTION REFLECTED IN DEMAT ACCOUNT ON 25.3. 2014) FOR RS. 2,08,779/- (LUMINAI TECH) @ RS. 18.98 PER SHARE AND ON 19.3.2014 (BUT THE TRANSACTION ON REFLECTED IN DEMAT ACCOUNT ON 21.3.2016) TO A PERSON FOR RS. 44,355/- @ RS. 14.7.85 PER SHARE AND HENCEFORTH RESULTED IN LOSS OF RS. 3,83,571/- AND RS. 1,95,585/- RESPEC TIVELY ON SHARES OF LUMINAI TECH AND NIKKIGL RESPECTIVELY. 2.4 THE AO VIDE ORDER SHEET DATED 09.8.2016, ASKED THE ASSESSEE TO JUSTIFY WHY THE COMPANY HAS PURCHASED THE SHARES ON HIGHER RATE AND SOLD OUT THEM AT LOWER PRICE DURING THE FINANCIAL Y EAR 2013-14. IN RESPONSE TO THE SAME, THE AR OF THE ASSESSEE FURNIS HED WRITTEN SUBMISSIONS ALONGWITH COPY OF COMPUTATION STATEMENT WHICH THE AO HAS MENTIONED IN THE ASSESSMENT ORDER. AFTER EXAMININ G ALL THE DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE, THE AO WAS OF THE VIEW THAT ASSESEE INDULGED IN OBTAINING BOGUS LOSS THROUGH PE NNY STOCK TRANSACTION AND FOUND THAT THE ABOVE SCRIP M/S LUMINAIRE TECHNO LOGIES LIMITED (CODE LUMINAI TECH) AND M/S NIKKI GLOBAL FINANCE LIMITED (CODE NIKKIGL) WERE INVOLVED IN THE ILLEGAL BUSINESS OF PENNY STOCK AND PROVIDING BOGUS STCL. THE INVESTIGATION WING HAS INDENTIFIED THAT BOTH TH E SCRIPTS ARE USED FOR GENERATING BOGUS LTCG/STCL. THE SAME MODUS OPERANDI WAS ALSO ADOPTED IN THE SHARE TRANSACTION. AFTER CONSIDERING THE WRITTEN SUBMISSIONS ALONGWITH THE DOCUMENTARY EVIDENCES FIL ED BY THE ASSESSEE, AO FOUND THAT THE EXPLANATION GIVEN BY THE ASSESSEE IS NOT TENABLE BECAUSE ASSESSEE HAS NOT PROVED THAT THE LOSS ON SA LE OF SHARES SHOWN BY THE ASSESSEE IS NOT GENUINE ONE AND IT HAS SUPPRESS ED ITS TAXABLE INCOME TO TAKE STCL THROUGH SHARES TRANSACTION MADE WITH A BOVE SAID COMPANIES. AFTER ANALYZING ALL THE DETAILS FILED BY THE ASSESSEE AS WELL AS DETAILS OBTAINED FROM OUTSIDE AGENCIES THE ASSESSEE WAS FOUND TO BE THE BENEFICIARY OF TAKING BOGUS LOSS ON TRADING OF SHAR ES BY WAY OF DEALING IN 5 THE AFORESAID SHARES. THE ASSESSEE HAS EARNED BOGUS LOSS ON SALE OF SHARES OF RS. 13,09,876/- BY MAKING PRE-DECIDED TRA NSACTIONS IN THE AFORESAID SHARES AND THIS AMOUNT WAS ADDED IN THE I NCOME OF THE ASSESSEE COMPANY. AO ALSO ADDED RS. 17,02,000/- ON ACCOUNT OF NOTIONAL INTEREST EARNED ON LOAN AND DISALLOWANCE OF EXPENSE S ON ACCOUNT OF ROC FEES AND COMPLETED THE ASSESSMENT U/S. 143(3) OF TH E ACT VIDE ORDER DATED 29.12.2016. AGAINST THE ASSESSMENT ORDER DATE D 29.12.2016, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE H IS IMPUGNED ORDER DATED 16.02.2018 HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND UPHELD THE ADDITION OF RS. 13,09,876/- ON ACCOUNT O F SHORT TERM CAPITAL LOSS EARNED THROUGH SHARE TRANSACTIONS MADE WITH TH E AFORESAID TWO COMPANIES TREATING HAS BOGUS LOSS ON THE SALE OF AF ORESAID SHARES. AGGRIEVED BY THE IMPUGNED ORDER DATED 16.02.2018, A SSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE HAS FILED THE WRITTEN SUBMISSIONS MADE BEFORE THE LD. CIT(A) WHI CH HE HAS ATTACHED IN THE PAPER BOOK CONTAINING PAGES 1-95 AND RELIED THE REON. HE STATED THAT ASSESSEE HAS ALSO FILED VARIOUS DOCUMENTARY EVID ENCES BEFORE THE REVENUE AUTHORITY WHICH HAS NOT BEEN PROPERLY CONSI DERED AND WRONGLY DECIDED THE ISSUE IN DISPUTE AGAINST THE ASSESSEE. HENCE, HE REQUESTED TO SET ASIDE THE ISSUE IN DISPUTE TO THE FILE OF T HE AO FOR FRESH ADJUDICATION WITH THE DIRECTIONS TO CONSIDER EACH A ND EVERY DOCUMENT FILED BY THE ASSESSEE AND GIVEN ADEQUATE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. 4. LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HE ALSO FILED THE WRITTEN SUBMISSIONS DATED 03.10.2019 IN WHICH H E HAS STATED THAT THE ISSUE IN DISPUTE HAS ALREADY BEEN ADJUDICATED AND D ECIDED IN FAVOUR OF THE REVENUE BY THE ITAT, DELHI BENCHES IN THE CASE OF UDIT KALRA VS. ITO DECIDED IN ITA NO. 6717/DEL/2017 DATED 8.1.2019 AND WHICH DECISION HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF UDIT KALRA VS. ITO IN ITA NO. 220/2019 & CM NO. 10774/2019 VID E ORDER DATED 08.03.2019. IN SUPPORT OF HIS CONTENTION HE HAS AL SO CITED VARIOUS 6 DECISIONS OF HONBLE BOMBAY HIGH COURT (NAGPUR BENC H) AND HONBLE PUNJAB AND HARYANA HIGH COURT AND THE DECISIONS OF THE ITAT, THE DETAILS THEREOF HAS BEEN MENTIONED IN THE WRITTEN SUBMISSIO N DATED 03.10.2019. 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS ESPECIALLY THE ORDERS OF THE REVENUE AUTHORITIES INCLUDING THE PAPER BOOK ALONGWITH OTHER DOCUMENTARY EVIDENCES AS WELL AS THE CASE LA WS RELIED BY BOTH THE PARTIES. I AM OF THE CONSIDERED VIEW THAT AO AS WEL L AS LD. CIT(A) HAS DECIDED THE ISSUE IN DISPUTE RELATING TO SHORT TERM CAPITAL LOSS AGAINST THE ASSESSEE WITHOUT EXAMINING THE DOCUMENTARY EVID ENCES FILED BY THE ASSESSEE WHICH THE ASSESSEE HAS FILED BEFORE ME IN THE SHAPE OF PAPER BOOK CONTAINING PAGES 1-95 IN WHICH HE HAS ATTACHED THE WRITTEN SUBMISSION DATED 5.2.2018 FILED BEFORE THE LD. CIT( A); STATEMENT OF SALE AND PURCHASE OF IMPUGNED SHARES ALONGWITH THE COPIE S OF BROKERS CONTRACT NOTES; WRITTEN SUBMISSIONS DATED 16.1.2018 FILED BEFORE CIT(A); COPY OF LETTER DATED 28.11.2016 FOR JUSTIFICATION O F INTEREST FREE LOANS AND ADVANCES ALONGWITH THE COPY OF CONFIRMATION RECEIVE D FROM THE PARTIES AGAINST SHOW CAUSE GIVEN BY THE AO; COPY OF LETTER DATED 3.11.2016 FOR JUSTIFICATION OF TRANSACTIONS FOR PURCHASE AND SALE OF SHARES AGAINST SHOW CAUSE GIVEN BY THE AO; COPY OF LETTER DATED 09.8. 2016 FILED BEFORE AO FOR PROVIDING FOLLOWING DOCUMENTS I.E. COPY OF DEMA T ACCOUNT, COPY OF FINANCIAL LEDGER, HOLDING STATEMENT OF M/S MULTIPLE X CAPITAL LTD. (SHARE BROKERS), DETAILS OF LOANS AND ADVANCES FOR THE YEA R ENDED 31.3.2014; COPY OF LETTER DATED 25.7.2016 FILED BEFORE AO ALON GWITH ASSESSMENT ORDER FOR THE AY 2013-14; COPY OF LETTER DATED 25.5 .2016 FILED BEFORE AO IN COMPLIANCE OF NOTICE ISSUED U/S. 142(1) OF THE I NCOME TAX ACT, 1961 DATED 12.5.2018; COPY OF BALANCE SHEET OF THE COMPA NY FOR THE YEAR ENDED 31.3.2014; PHOTOCOPY OF BANK STATEMENT FOR TH E FY 2013-14; PHOTOCOPY OF ACKNOWLEDGEMENT OF IT RETURN FOR THE A Y 2014-15 ALONGWITH COMPUTATION OF TOTAL INCOME; NOTICE UNDER SUB-SECTI ON (1) OF SECTION 142 OF THE INCOME TAX ACT DATED 12.5.2016. I AM OF THE VIEW THAT THE DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE ESTABLI SHING THE LOSS IN DISPUTE NEEDS TO BE RE-EXAMINED AT THE LEVEL OF THE ASSESSING OFFICER, 7 BECAUSE IT WILL GOES TO THE ROOT OF THE ISSUES IN D ISPUTE. I AM NOT COMMENTING UPON THE MERITS OF THE CASE AND I HAVE N OT APPRECIATED THE EVIDENCES FILED BY THE ASSESSEE BECAUSE IT WILL PRE JUDICE TO THE MIND OF THE AO. IN THE INTEREST OF JUSTICE, I AM OF THE VIE W THAT THE ISSUES IN DISPUTE REQUIRE RE-EXAMINATION AT THE LEVEL OF THE AO. THEREFORE, I SET ASIDE THE ISSUES IN DISPUTE TO THE FILE OF THE AO TO EXAMINE THE SAME AS PER LAW, AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED ON 03.01.2020. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATED: 03-01-2020 SRB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) ASST. REGISTRAR, 5. DR ITAT, NEW DELHI