ACIT, Cir-1(3), Surat V. Shri Rajeshkumar Arjanbhai Vekaria, Surat

ITA 339/SRT/2022

AI Insights

The case revolves around an appeal by the Revenue against the decision of the CIT(A), which had allowed the claim of short-term capital loss by the assessee, Shri Rajeshkumar Arjanbhai Vekaria, for the assessment year 2014-15. The Revenue contended that the assessee had booked losses in penny stocks to offset the capital gains earned from the sale of immovable properties, thereby avoiding tax. The Assessing Officer disallowed the loss, citing manipulation of stock prices and a scheme to provide short-term capital loss. However, the CIT(A) reversed this decision, finding that the assessee had provided substantial evidence to substantiate the genuineness of the transactions, which the Assessing Officer failed to disprove. The Tribunal agreed with the CIT(A), emphasizing the lack of independent investigation by the Assessing Officer and the reliance on the Investigation Wing's report.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134685 (ITAT-SURAT)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 01-08-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 20-11-2022
• Other Referred Cases: McDoweell vs. CTO, PCIT vs. Swati Bajaj, PCIT vs. Indravadan Jain, HUF, PCIT vs. Parasben Kasturchand Kochar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SURESH K. KABRA
• Keywords: Unexplained cash credit; Tax effect; Tax effect; Penny stocks; Capital Gains
• Section: 131; 143(3)

Judgement Text

आयकर अपीलीय अिधकरण, सुरत Ɋायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL, “SMC” BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER आ.अ.सं./ITA No.339/SRT/2022 (AY 2014-15) (Hearing in Physical Court) Assistant Commissioner of Income Tax, Circle-1(3), Surat, Room No.301, 3 rd Floor, Anavil Business Centre, Hajira Road, Adajan, Surat-395009 Vs Shri Rajeshkumar Arjanbhai Vekaria, 503, Trade Centre, Ring Road, Surat-395007 PAN No: ACOPV 1228 P अपीलाथŎ/Appellant ŮȑथŎ /Respondent िनधाŊįरती की ओर से /Assessee by Shri Suresh K. Kabra, CA राजˢ की ओर से /Revenue by Shri Vinod Kumar, Sr-DR सुनवाई की तारीख/Date of hearing 02.08.2023 उद्घोषणा की तारीख/Date of pronouncement 28.08.2023 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “Ld. NFAC/ Ld.CIT(A)”] dated 19.10.2022 for assessment year 2014-15, which in turn arises from the addition made by the Income Tax Officer, Ward-1(2)(5), Surat /Assessing Officer in assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2016. The Revenue has raised the following ground of appeal:- “(i) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in allowing the claim of assessee in respect of Short Term Capital Loss of Rs.25,44,405/- without appreciating that the assessee had booked the said loss on account of share transactions in penny scrips named Ravinay Trading, Swarnsarita, Turbo Tech Engg. And Kapil Cotex, to avoid ta on long term capital gain and short term capital gains earned during the year on sale of immovable properties. (ii) On the facts and circumstances of the case and in aw, the Ld. CIT(A), has erred in allowing the claim of assessee ignoring the fact that the stock ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 2 prices of the said penny stock companies are manipulated to provide the short term capital loss. (iii) On the facts and circumstances of the case and in law, the ld. CIT(A) has further erred in ignoring judicial pronouncement by the Hon'ble Supreme Court in the case of McDoweell vs. CTO (1986 AIR 649,1985 SCR (3) 91) wherein it was held that “Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.” (iv) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. (v) It is therefore prayed that the order of the Ld. CIT(A) may kindly be set aside and that of the Assessing Officer be restored. (vi) The appellant craves leave to add, alter, amend and/or withdraw any grounds of appeal either before or during the course of hearing of the appeal.” 2. Brief facts of the case are that case of assessee is an individual, filed his return of income for assessment year 2014-15 on 03.11.2014 declaring income of Rs.14,25,090/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that assessee has shown Long Term Capital Gains (LTCG for short) of Rs.11,17,534/- on sale of one immovable property at Samarpan, Boriwali on 05.09.2013, assessee also claimed Short Term Capital Gains (‘STCG’ for short) on sale of three other immovable properties being No.501, 503, 1101 of Dream World. The assessee also claimed Short Term Capital loss (‘STCL’ for short) of Rs. 25.44 lakhs, on sale of shares of different scrips. The loss of shares was set off against the capital gains of Rs.18,83,934/- (11,17,534 LTCG + 7,66,400 STCG) and balance of loss of Rs.6,60,471/- was claimed as carry forward. The Assessing Officer noted that the scrips in which assessee claimed ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 3 STCL namely, Ravinay Trading, Swarnsarita, Turbo Tech and Kapil Cotex are featured in the list of penny stocks as reported by Investigation Wing of Income Tax Department, Kolkata. The Investigation Wing, Kolkata made a detailed and through investigation and reported that all the above companies are manipulated to show profit of LTCG and/or STCL as the case may be. The Assessing Officer further noted that Kapil Cotex and Turbo Tech Engineering Ltd. were suspended till the date of assessment order by Bombay Stock Exchange. The Assessing Officer recorded that price rise trend of was rigged up systematically until reached at the desired level, the price was raised to profit of LTCG accommodation entry to the beneficiaries for obtaining desired level. The scrips were shortfall to the initial level to provide the STCL to the beneficiaries. The assessee purchased such scrips on 12.02.2014 and 13.02.2014 @ higher rate and within a short period less than one month. The assessee has shown STCL deliberately to set off against capital gain. The Assessing Officer further recorded that assessee has made investment approximately Rs.1.00 crores in penny stocks and incurred loss of Rs.25.44 lakhs. The statement of assessee was recorded under section 131 on 09.12.2016. In his statement he stated that he heard about scrips from his friends and relatives, when he was confronted how the broker and scrips were chosen or any fundamental analysis made before making such investment. The assessee answered that he heard about these companies from his friend circle and one of his friend told him to open a demat account first as it is required for share trading. As per ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 4 his friend advice, assessee opened a demat account and on his recommendation made investment of Rs. 1.00 crore without doubt. The Assessing Officer recorded that investment was made with pre- determined manner to show short term capital loss in order to set off Capital gains, by knowingly that assessee has sold immovable properties and earned capital gains. It was made to avoid tax of capital gains. The assessee deliberately chose to trade in penny stocks and booked the loss. 3. On the basis of such observation, the Assessing Officer issued detailed show cause notice dated 09.12.2016. The contents of show cause are recorded in para-4.7 of assessment order. The Assessing Officer recorded that assessee filed his reply on 13.12.2016, the contents of reply are recorded in para-4.8 in assessment order. In the reply, the assessee in sum and substance submitted that he made all compliance and reply all the queries. The Assessing Officer has simply drawn the conclusion of penny stocks on the basis of borrowed theory based on hypothetical accommodation theory for arranging capital gains/ loss, on the basis of so-called investigation report that scrips in which he dealt, are penny stock and not on the basis of fact of the case that assessee was having sufficient funds. The assessee made investment for attractive investment opportunities to maximise return and he invested from his surplus funds. On earlier occasion, the assessee used to invest in surplus funds in immovable properties and investment trips substantially. Assessee’s friend suggested into share market to maximise the profit. Before making investment, he made ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 5 through enquiry from his relatives and friends. The companies belonged to different segments like Swarnsarita Gems Ltd. was in the business of trading of gems & jewellery, Ravinay Trading Company was engaged in the business of construction etc. A large sum of amount was invested in the hope of good return but after a few days, there was a downward trend in various shares. The assessee sold such shares to avoid heavy loss within a short span of time. The assessee submitted that sale and purchase was through recognized broker of Stock Exchange and supported with contract notes that payment for purchase and sales were made / received through banking channel and delivery of the shares were made through demat accounts, transaction tax was paid. The assessee furnished demat statement, contract notes of purchase and sale, relevant entry of bank statement. The assessee stated that his statement has already been recorded by the office of Assessing Officer so he believed that no adverse inference had been drawn from his statement. The assessee also furnished share price pattern of share indicating heavy return which influence the assessee for making such investment and summary of financial performance on major data of these companies. 4. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer held that assessee has given general reply and that penny stocks were purchased through recognized Stock Exchange through Bombay Stock Exchange in electronic mode, the whole set of transactions involved in miracle stock entry. The Assessing Officer recorded the modus operandi of entry provider and held that short ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 6 term capital loss was obtained to set off capital gains. The assessee entered into share transaction for availing loss and accordingly disallowed the loss to the extent of capital gains thereby making addition of Rs.18,83,934/- and remaining short term capital loss of Rs. 6,60,471/- was not allowed to be carry forward in the assessment order dated 29/12/2016 passed under section 143(3). 5. Aggrieved by the addition/ disallowance of short term capital loss in the assessment order, the assessee filed appeal before Ld. CIT(A). Before Ld. CIT(A) assessee filed detailed written submission. In the written submissions the assessee explained the date of acquisition of immovable properties and date of sale with sale consideration, profit earned on sale of such immovable properties in the form of capital gain either long term or short term. On the issue of STCL on alleged penny stock, the assessee reiterated his all submission as explained before assessing officer. All the details of written submission about suffering of short term capital gain as recorded at pages 21 to 27 of the order of Ld. CIT(A). 6. The Ld. CIT(A) after considering the submission of assessee and assessment order held that assessee has filed substantial evidence on record to substantiate the genuineness and veracity of purchase and sales of share of Ravinay Trading, Swarnsarita, Turbo Tech and Kapil Cotex including copy of contract notes, copy of demat account, copy of bank statements and account sale and purchase. Such evidence was not rebutted or disprove by the Assessing Officer. The assessee filed concrete and irrefutable evidences and Assessing Officer merely rely ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 7 on the information supplied by the Investigation Wing without making independent enquiry about the facts and genuineness of such shares transaction carried out by the assessee. The assessing officer in the assessment order held that investigation wing had carried out detailed investigation in case of penny stock but neither the name of broker, who have done such transaction nor the name of companies which are involved such activities are mentioned. The Assessing Officer on relying on case law of various Benches of Tribunal held that on the basis of evidence brought on record the impugned addition not to be sustained and allowed full relief gets assessee. Aggrieved by the order of ld. CIT(A) the Revenue has filed present appeal before the Tribunal. 7. I have heard the submission of Ld. Senior Departmental- Representative (Ld. Sr-DR) for the Revenue and Ld. Authorized Representative (Ld. AR) for the assessee. The ld. Sr-DR for the Revenue supported the order of Assessing Officer and submits that order of Ld. CIT(A) is not acceptable for the reasons that he has simply held that assessee filed substantial documentary evidence to substantiate genuineness and veracity of purchase of shares in the form of contract notes, copy of demat account and bank statement. However, Ld. CIT(A) failed to appreciate the fact and ignored the modus operandi of such cases, which was thoroughly investigated by Investigation Wing Kolkata and report of Investigation Wing Kolkata was furnished by Director General of Income Tax Inveestigation in Mumbai, Delhi Ahmedabad, Bengaluru, Bhopal Chandigarh, Chennai, Delhi, Hyderabad, Jaipur, Kochi, Lucknow, Patna Pune and Director ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 8 General (International Taxation) which are available in the public domain. The Ld. CIT(A) has not followed the decision of Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj, IA No.GA/2/2022 dated 14.06.2022. The assessee is a beneficiary of penny stock for STCL, which is obtained only with the sole motive for setting of short term capital loss against short term capital gain & long term capital gain earned by assessee, during currant assessment year. The Ld. Sr-DR for the Revenue submits that sale of share by way of colourable device, cannot be a part of tax planning and was made only to avoid payment of tax. 8. The Ld. Sr-DR for the Revenue submits that though the tax effect involved in the present appeal is less than monetary limit prescribed by Central Board of Direct Tax (CBDT) in its Circular No.17/2019 dated 08.08.2019. However, the present case falls in exception clause of monetary limits for filing appeal as per CBDT Circular No.23/2019 dated 06.09.2019. Considering such fact, the appeal is filed before Tribunal, being falls under exception clause to tax effect of monetary limit. 9. On the other hand, Ld. AR for the assessee supported the order of Ld. CIT(A). The ld AR for the assessee submits that during the assessment the assesse furnished complete details of share transactions. The assessee opened demat account. And all the transactions either of purchase or sale of shares made through demat account. The sale consideration was made through banking channels. The payment of sale consideration was made after deduction of transaction charges. ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 9 The ld AR for the assessee submits that before making investment, he made through enquiry from his relatives and friends. The companies belonged to different segments were engaged in the different business The assessee sold such shares to avoid heavy loss within a short span of time. The assessee submitted that sale and purchase was through recognized broker of Stock Exchange. The purchase and sale of shares were supported with contract notes that payment for purchase and sales were made / received through banking channel and delivery of the shares were made through demat accounts. The assessee furnished demat statement, contract notes of purchase and sale, relevant entry of bank statement. The statement of assessee was recorded the office Assessing Officer and no adverse was find in his statement. The assessee also furnished share price pattern of share indicating heavy return which influence the assessee for making such investment and summary of financial performance on major data of these companies. The assessee invested huge fund of Rs. 1.00 Crore to earn good return, but the assessee suffered losses in short span of time, so he immediately sold the scrips of such shares. Entire transaction carried out by the assessee is genuine and cannot be doubted. The action of the assessing officer is solely based on the report of investigation wing of Kolkata without bringing any adverse material against the assessee. The ld CIT(A) appreciated the facts and granted relief to the assessee. To support his submissions, the ld AR for the assessee relied on the following decisions;  PCIT vs. Indravadan Jain, HUF Income Tax Appeal No.454 of 2018 ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 10  PCIT vs. Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC)/[2021] 282 Taxman 301 (SC)[02-08-2021],  PCIT vs. Parasben Kasturchand Kochar (2021) 130 taxmann.com 176 (Guj),  Parasben Kasturchand Kochar Mehtea Lodha & Co. vs. ITO in ITA No.549/AHD/2018 dated 20.02.2020,  PCIT Vs Indravadan Jain (HUF) ITA No. 454 of 2018 (Bombay High Court) and  ITO Vs Indravadan Jain (HUF) in ITA No. 4861 & 5168/Mum/2018 dated 27.95.2016. 10. I have considered the submission of both the parties and perused the orders of lower authorities carefully. I also gone through various documents filed by the assessee and deliberated on the various case law relied by ld representatives of the parties. The assessing officer made addition by disallowing the set off of short term capital loss on sale of shares scrips against the short term & long term capital gain by taking view that the assessee managed the loss of sale of share scrips to avoid the payment of tax on capital gain earned on sale of immovable properties. I find that the Assessing Officer doubted the transaction of assessee on the basis of report of Investigation Wing Kolkata. No independent investigation was carried out the assessing officer to disprove the fact and evidence brought on record by the assessee. I find that merely because there was allegation and investigation was done, the transactions of assessee were through recognised broker of stock exchange cannot be doubted, unless there is allegation against the broker through whom the assessee carried such transaction. I further find that assessee has furnished complete evidence including contract note of shares, demat details, detail of bank a/c. However, no adverse evidence was brought against such ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 11 evidence. Nor the assessing officer made adverse comment on such evidences. I find that ld. CIT(A) granted relief to the assessee by taking view that assessee had filed concrete and irrefutable evidences and assessing officer merely rely on the information supplied by the Investigation Wing without making independent enquiry about the facts and genuineness of such shares transaction carried out by the assessee. It was also held by ld CIT(A) that assessing officer in the assessment order held that investigation wing had carried out detailed investigation in case of penny stock but neither the name of broker, who have done such transaction nor the name of companies which are involved such activities are mentioned in the assessment order. 11. I find merits in the submissions of the ld AR for the assessee that statement of assessee was recorded in the office Assessing Officer and no adverse was extracted in his statement. The assessee invested huge fund of Rs. 1.00 Crore in anticipation to earn good return, but the assessee suffered losses in short span of time, so he immediately sold the scrips of such shares and that transaction carried out by the assessee is genuine and cannot be doubted. 12. I find that Hon'ble jurisdictional High Court in the case of Himani M. Vakil (supra) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. I further find that Hon'ble jurisdictional High Court in the case of ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 12 Parasben Kasturchand Kochar (supra) also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished by Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. Further I find of Hon'ble Bombay High Court in the case of PCIT Vs. Indravadan Jain, HUF (supra) in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction. Considering the afforesaid factual and legal discussion, I do not find any infirmity or illegality in the order passed by ld CIT(A), which I affirms. In the result, the grounds of appeal raised by the revenue are dismissed. 13. In the result, the appeal of the Revenue is dismissed. Order pronounced in open court on 28 th August,2023. Sd/- (PAWAN SINGH) [Ɋाियक सद˟ JUDICIAL MEMBER] सूरत /Surat, Dated: 28/08/2023 Dkp. Out Sourcing Sr.P.S ITA No.339/SRT/2022 (A.Y 14-15) Sh. Rajeshkumar A Vekaria 13 Copy to: 1. Appellant 2. Respondent 3. CIT By order 4. DR 5. Guard File // True Copy // Senior Private Secretary/ Private Secretary/Assistant Registrar, ITAT, Surat copy/