RADHAKRISHNA ROADWAYS P.LTD, NAVI MUMBAI V. ACIT CC 45, KALYAN

ITA 3728/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1516 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: VIJAY MEHTA A R RUTUJA MEHTA
• Keywords: Share purchase agreement; Principle of natural justice; Sham transactions; Set aside
• Section: 271(1)(c); 143(3); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.3728/M/2017 ASSESSMENT YEAR: 2010-11 M/S. RADHAKRISHNA ROADWAYS PVT. LTD., STEEL CHAMBERS, 218-A, 2 ND FLOOR, KALAMBOLI, NAVI MUMBAI - 410218 PAN: AABCP5835C VS. ACIT CC-45, ROOM NO.658, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIJAY MEHTA, A.R. RUTUJA MEHTA, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 20.02.2019 DATE OF PRONOUNCEMENT : 14.03.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 03.02.2014 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF PENALTY OF RS.1,68,52,242/- BY LD. CIT(A) AS LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT BY WHILE THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 274 READ WIT H SECTION 271 OF THE ACT DATED 28.03.2013 IS NULL AND VOID. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS FRAMED VIDE ORDER DATED 28.03 .2013 ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 2 ASSESSING THE INCOME AT NIL AS AGAINST THE RETURN L OSS OF RS.7,43,70,000/- IN THE ORIGINAL RETURN INCOME FILE D ON 15.10.2010. IN THE ASSESSMENT FRAMED BY THE AO , THE PURCHASE AND SALE OF SHARES OF M/S. SKS ISPAT AND P OWER LTD. WERE HELD TO BE SHAM TRANSACTIONS AND CONSEQUENTLY , THE SAID LOSS WAS NOT ALLOWED TO BE CARRIED FORWARD. 4. IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) O F THE ACT, THE AO INITIATED PENALTY PROCEEDINGS AND STATED TH AT NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF TH E ACT IS ISSUED WITHOUT MENTIONING WHETHER PENALTY THE NOTICE IS IS SUED FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURA TE PARTICULARS OF INCOME. IN THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT DATED 28.03. 2013 THE AO DID NOT MENTION WHETHER IS ISSUED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME MEANING THEREBY THAT NOTICE WAS ISSUED IN A STANDARD FORMAT. FINALLY THE PENALTY WAS IMPOSED VIDE ORDER DATED 30.09.2013 AT RS.2,52,78,363/- EQUAL TO 100% OF THE TAX SOUGHT TO BE EVADED BY INVOKING EXPLANATION-1 TO SECTION 2 71(1)(C) OF THE ACT FOR CONCEALMENT OF PARTICULARS OF INCOME TO THE TUNE OF RS.7,43,70,000/-. 5. IN THE PENALTY PROCEEDINGS, THE ASSESSEE SUBMITT ED THAT THE SAID LOSS HAS RESULTED FROM THE SALE OF 13,32,000 S HARES OF M/S. SKS ISPAT AND POWER LTD. OF FACE VALUE OF 10/- EACH AT A PREMIUM OF RS.50/-. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SAID COMPANY WAS SETTING UP AN INTEGRATED STEEL PLANT ALONG WITH CAPTIVE POWER PLANT AT RAIPUR. IT WAS SUBMITTE D THAT ASSESSEE AFTER MAKING VARIOUS CALCULATIONS , PROJEC TIONS AND ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 3 ESTIMATES ABOUT THE FUTURE EARNING OF THE SAID COM PANY BOUGHT 13,32,000 SHARES WHICH WERE DULY SHOWN AS LONG TER M INVESTMENTS IN THE BALANCE SHEETS OF ALL THE YEARS. THEREAFTER, WHEN NO INCOME /REVENUE WAS COMING FROM THE SAID INVESTMENTS AND ALSO THAT THE SAID COMPANY WAS EVEN LISTED IN THE EXCHANGE , THE ASSESSEE DECIDED TO SELL THE SHA RES AND ACCORDINGLY SALE WAS MADE TO VARIOUS PARTIES WHICH HAS RESULTED IN A LONG TERM LOSS OF RS.7,43,70,000/- AFTER INDEX ING THE COST OF PURCHASE. THE DETAILS OF SHARES SOLD TO VARIOUS COM PANIES HAVE BEEN GIVEN BY THE AO IN PENALTY ORDER AT PARA 2.1. ULTIMATELY , THE AO, NOT TREATING THE LONG TERM CAPITAL GAIN AS GENUINE, REJECTED THE CONTENTIONS OF THE ASSESSEE AND CARRY FORWARD OF THE SAME WAS DENIED. 6. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AFT ER TAKING INTO ACCOUNT THE SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE DISMISSED THE APPEAL BY OBSERVING AND HOLDING AS U NDER: 6.4.1 I AGREE WITH THE CONTENTION OF THE AO THAT T HE APPELLANT'S CLAIM THAT THE SHARES WERE SOLD AT THE RATE OF RS. 10 PER SHARE CA NNOT BE REJECTED MERELY BECAUSE ANOTHER PARTY (H. N. TRADELINK PRIVATE LIMITED ) HA D CLAIMED TO HAVE SOLD THE SHARES IN THE SAME COMPANY DURING THE SAME FINANCIAL YEAR AT A MUCH HIGHER RATE. I ALSO AGREE WITH THE CONTENTION OF THE APPELLANT THAT IT IS QUITE POSSIBLE THAT H. N. TRADELINK PRIVATE LIMITED HAD OVERSTATED THE SALE P RICE OF THE SHARES IN ORDER TO BUILD UP CAPITAL. BE THAT AS IT MAY, 1 FIND FROM PA RA 4.2 OF THE ASSESSMENT ORDER THAT SHOW CAUSE NOTICES WERE ISSUED CALLING UPON THE APP ELLANT TO PRODUCE, INTER ALIA, COPIES OF SHARE TRANSFER FORMS, SHARE CERTIFICATES ALLOTTED / TRANSFER AND EVIDENCES WITH REGARD TO DESPATCH / RECEIPT OF SHARE CERTIFIC ATES FOR THE SHARES TRANSFERRED. I ALSO FIND FROM PARA 4.3 OF THE ORDER THAT THE APPEL LANT DID NOT FULLY PRODUCE ALL THE DOCUMENTS CALLED FOR BY THE AO. PARA 4.3 OF THE AS SESSMENT ORDER IS REPRODUCED BELOW: 4.3 THE ASSESSEE FILED REPLY TO THE ABOVE SHOW-CA USE NOTICE VIDE LETTER 13.03.2013 ONLY GIVING DETAILS OF THE SHARES STATED TO HAVE SOLD AND WORKING OF LOSSES. THE ASSESSEE DENIED OF ENTERING INTO AN Y SPECULATIVE TRANSACTION AND STATED THAT ALL THE TRADING ACTIVITIES WERE DON E ON ACTUAL DELIVERY BASIS.. ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 4 7. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE ONLY ISSUE ON WHICH THE PENALTY WAS IMPOSED WAS THE LONG TERM LOSS ON SALE OF SHARES OF M/S. SKS ISPAT AND POWER LTD. TO SIX BUYERS AT VARIOUS RATES. THE LD. A.R. SUBMITTED THAT THE SAID COMPANY WAS NOT A LISTED COMPANY AND ASSESSEE WAS FACING PR OBLEMS IN SELLING THESE SHARES IN THE OPEN MARKET. ALL THE C ALCULATIONS AND PROJECTIONS MADE BY THE ASSESSEE AT THE TIME OF PUR CHASE OF SHARES AT RS.50 (FACE VALUE 10 PREMIUM 40) WERE WEN T WRONG. THESE SHARES WERE PURCHASED ON 06.09.2004 BY WAY OF ALLOTMENT AND THEREAFTER CONTINUED TO BE SHOWN AS LONG TERM I NVESTMENTS IN THE BALANCE SHEETS OF THIS COMPANY IN THE SUBSEQ UENT YEARS AND SOLD TO VIGNESH STEEL PVT. LTD. ON 12.03.2010 AT FACE VALUE OF RS.10/-. THE LD. A.R. FILED A COPY OF CONFIRMATION FROM THE SAID BUYER AT PAGE NO.18 OF THE PAPER BOOK. THE LD . A.R. SUBMITTED THAT THE OBSERVATIONS OF THE AO AND LD. C IT(A) THAT NO INFORMATION/DETAILS WERE FURNISHED BEFORE THEM WER E TOTALLY WRONG. THE LD. A.R. REFERRED TO REPLY DATED 11.03. 2013 AND 17.09.2013 FILED BEFORE THE AO AND ALSO WRITTEN SUB MISSIONS FILED BEFORE THE LD. CIT(A) FILED AT PAGE NO.29 TO 39 OF THE PB. THE LD. A.R., THEREFORE, SUBMITTED THAT THE OBSERVA TIONS OF THE AO AND LD. CIT(A) ARE WRONG TO THE EXTENT THAT ASSE SSEE HAS FILED ALL THE NECESSARY PAPERS, CONFIRMATIONS, PURCHASE E VIDENCES OF THE SHARES ALONG WITH BALANCE SHEETS OF THE ASSESSE E TO PROVE ALL THESE TRANSACTIONS. THE LD. A.R. ALSO SUBMITTED TH AT NO QUANTUM APPEAL HAS BEEN PREFERRED AS THERE WAS NO I NCOME OF THE ASSESSEE IN THE CURRENT YEAR OR IN THE SUBSEQUE NT YEARS AND THERE WAS NO ADJUSTMENT/SETTING OFF IN NEAR FUTURE AGAINST THE INCOME. THE LD. A.R. ALSO SUBMITTED THAT IN THE AS SESSEES CASE THE ASSESSMENT WAS FRAMED BY THE AO SHRI CHANGANTI SANJEEV, ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 5 ACIT OF WEALTH TAX, CENTRAL CIRCLE -45, MUMBAI WHO WAS INCIDENTLY HAPPENED TO BE THE AO IN THE CASE OF THE M/S VIGNESH STEEL PVT. LTD. THE LD. A.R. FILED BEFORE THE BENC H COPY OF THE ASSESSMENT ORDER IN THE CASE OF VIGNESH STEEL PVT. LTD. FOR A.Y. 2009-10 DATED 28.03.2013 PASSED UNDER SECTION 143(3 ) WHEREIN THE SAID PURCHASES OF SHARES OF M/S. SKS ISPAT AND POWER LTD. HAVE BEEN ACCEPTED BY THE AO IN THE SCRUTINY PROCEE DINGS. THE LD. A.R. STATED THAT HOW THE TRANSACTIONS OF SALE O F SHARES COULD BE A SHAM IN THE HANDS OF SELLER WHILE THE SAME IS TREATED AS GENUINE TRANSACTIONS IN THE HANDS OF THE BUYER. TH EREFORE, THE PENALTY LEVIED ON MERE SUSPICION THAT SALE AND PURC HASE OF SHARES ARE BOGUS AND SHAM IS WRONG AND AGAINST THE FACTS ON RECORD AND MAY KINDLY BE DELETED. THE LD. A.R. ALS O REFERRED TO THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTI ON 271 OF THE ACT DATED 28.03.2013 WHEREIN THE LD. A.R. POINTED O UT THAT AO HAS ISSUED NOTICE IN A MECHANICAL MANNER WITHOUT AP PLICATION OF MIND AS IT IS SPECIFIED WHETHER THE PENALTY IS BEI NG PROPOSED TO BE LEVIED FOR CONCEALMENT OF INCOME OR FOR FURNISH ING OF INACCURATE PARTICULARS OF INCOME. THE LD. A.R. ALS O TOOK US THROUGH THE ASSESSMENT ORDER WHEREIN IT IS STATED T HAT NOTICE IS BEING ISSUED UNDER SECTION 274 READ WITH SECTION 27 1(1)(C) OF THE ACT AND IN PARA 3.9 OF THE ASSESSMENT ORDER, THE AO STATED THAT THE SALE TRANSACTIONS OF SHARES BY THE ASSESSEE WE RE HELD TO BE SHAM AND THEREFORE, LOSS OF RS.7,43,70,000/- IS DIS ALLOWED AND IGNORED AND THUS INCOME UNDER CAPITAL GAIN ASSESSED AT NIL. THE AO FURTHER STATED THAT PENALTY PROCEEDINGS UNDER SE CTION 271(1)(C) ARE INITIATED SEPARATELY. THE LD. A.R. T HUS POINTED OUT THAT THE AO HAS NOT MENTIONED ONE OF THE TWO LIMBS I.E. SPECIFIC CHARGE ON WHICH THE AO PROPOSED TO LEVY THE PENALTY . ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 6 THEREAFTER, THE LD. A.R. REFERRED TO THE PENALTY OR DER PASSED UNDER SECTION 271(1)(C) DATED 30.09.2013 WHEREIN TH E PENALTY WAS IMPOSED BY INVOKING EXPLANATION-1 TO SECTION 27 1(1)(C). THE LD. A.R. CONTENDED THAT THE ORDER PASSED BY THE AO IS BAD IN LAW AND VOID AB-INITIO ON THE GROUND THAT THE AO HAS NOT CONFRONTED THE ASSESSEE WITH THE PARTICULAR CHARGE I.E. WHETHER THE PENALTY IS IMPOSED FOR CONCEALMENT OF INCOME OR FOR INACCURATE PARTICULARS OF INCOME THEREBY DEPRIVING THE ASSESSEE OF OPPORTUNITY TO RESPOND ON THAT LIMB. THE LD AR AGUED THAT THE PRINCIPLES OF NATURAL JUSTICE WERE VIOLATED BY ISSUING THE NOTICE IN THE STANDARD FORMAT WHICH WAS ISSUED WITH OUT APPLICATION MIND. THE LD. A.R. RELIED HEAVILY ON T HE ORDER OF HON'BLE HON'BLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF SHRI SAMSON PERINCHERY ITA NO. 1154 OF 2014, WHE REIN HON'BLE COURT BY FOLLOWING THE RATIO LAID DOWN IN T HE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY (359 ITR 565 ) CAME TO THE CONCLUSION THAT NO PENALTY CAN BE IMPOSED PA RTICULARLY WHEN LIMB ON WHICH THE PENALTY WAS PROPOSED TO BE LEVIED IS NOT MENTIONED AND NOTICE IS ISSUED IN A MECHANICAL MANNER AND SUBMITTED THAT IN VIEW OF THE RATIO LAID DOWN BY HON'BLE BOMBAY HIGH COURT, THE ORDER OF LEARNED CIT(A) MAY BE SET ASIDE AND THE ASSESSING OFFICER BE DIRECTED TO DELE TED THE PENALTY. 8. THE LD. D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THE ORDER OF THE AO WAS RIGHTLY UPHELD BY LD. CIT(A) AS THE SHARE TRANSACTIONS WI TH M/S. SKS ISPAT AND POWER LTD. WERE SHAM TRANSACTIONS AND THE REFORE PENALTY WAS RIGHTLY LEVIED. SO FAR AS THE NON STRI KING OF THE ONE OF THE TWO LIMBS ARE CONCERNED, THE LD. D.R. SUBMIT TED THAT THIS ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 7 IS JUST A CLERICAL MISTAKE ON THE PART OF THE AO A ND CAN NOT BE TAKEN AS FATAL TO THE PENALTY ORDER. THE LD DR FUR THER CONTENDED THAT THE ASSESSEE PARTICIPATED IN THE PENALTY PROCE EDINGS AFTER IT WAS SERVED NOTICE U/S 271(1)(C) OF THE ACT AND DUE OPPORTUNITY WAS GIVEN SO THERE IS NO QUESTION OF VIOLATION OF P RINCIPLE OF NATURAL JUSTICE. THE DR ,THEREFORE, THE ORDER OF L EARNED CIT(A) MAY BE AFFIRMED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING VARIOU S DECISIONS CITED BY LEARNED AR. THE UNDISPUTED FACTS ARE THAT THE ASSESSING OFFICER WHILE FRAMING ASSESSMENT U/S. 143(3) OF THE ACT INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT WITHO UT MENTIONING WHETHER THE SAME RELATES TO CONCEALMENT OF INCOME O R FILING OF INACCURATE PARTICULARS OF INCOME. SIMILARLY, WHEN N OTICE U/S. 271(1)(C) OF THE ACT WAS ISSUED ON 28.03.2013 THE S AME WAS ISSUED IN MECHANICAL MANNER WITHOUT STRIKING OFF IR RELEVANT LIMB AND THEREFORE THERE WAS NO APPLICATION OF MIND ON T HE PART OF THE ASSESSING OFFICER. EVEN IN THE ORDER IMPOSING PENA LTY, THE ASSESSING OFFICER MENTIONED BOTH LIMBS. IN OUR VIEW IT IS MANDATORY ON THE PART OF THE ASSESSING OFFICER TO S PECIFICALLY STATE THE PARTICULAR CHARGE ON WHICH PENALTY IS PRO POSED TO BE LEVIED AND NON-STRIKING OFF OF THE IRRELEVANT LI MB WILL GO TO THE ROOT OF JURISDICTION OF THE ASSESSING OFFICER TO PA SS PENALTY ORDER. IN THE CASE OF MANJUNATH COTTON & GINNING FA CTORY (SUPRA) AND M/S. SSAS EMERALD MEADOWS, ITA NO. 38 OF 2015 DATED 23.11.2015, IT HAS BEEN HELD THAT NO PENALTY CAN BE IMPOSED WHERE ONE OF THE TWO LIMBS I.E. CONCEALME NT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME ON WHICH PENALTY WAS PROPOSED TO BE IMPOSED IS NOT MENTIONED . IN THE ITA NO.3728/M/2017 M/S. RADHAKRISHNA ROADWAYS PVT. LTD. 8 CASE OF M/S. SSAS EMERALD MEADOWS (SUPRA) SLP FIL ED IN HON'BLE SUPREME COURT BY THE DEPARTMENT HAS ALSO BE EN DISMISSED. IN THE CASE OF SHRI SAMSON PERINCHERY (S UPRA) HON'BLE BOMBAY HIGH COURT HAS HELD THAT PENALTY TO BE IMPOSED ON THE GROUND/LIMB ON WHICH PENALTY HAS BEEN INITIA TED. THUS, IN VIEW OF THE RATIO LAID DOWN BY VARIOUS COURTS AN D JUDICIAL FORUMS, WE ARE OF THE VIEW THAT PENALTY ORDER IS BA D IN LAW. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DEL ETE THE PENALTY. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.03.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14.03.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.