ITO 16(1)(2), MUMBAI V. PRANLAL P DAMANI, NAVI MUMBAI

ITA 3747/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48490 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Share purchase agreement; Reason to believe
• Section: 54; 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER ITA NO.3747/MUM./2010 (ASSESSMENT YEAR : 2004-05 ) DATE OF HEARING: 26.4.2011 INCOME TAX OFFICER, WARD-16(1)(2) MATRU MANDIR, MUMBAI 400 007 .. APPELLANT V/S MR. PRANLAL P. DAMANI 44, VIJAY CHAMBERS TRIBHUVANDAS ROAD MUMBAI 400 004 PAN AABPD7637F .... RESPONDENT REVENUE BY : MR. SURENDRA KUMAR ASSESSEE BY : MR. M. SUBRAMANIAN O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE REVENUE, IS DIRECTED AGAIN ST THE IMPUGNED ORDER DATED 19 TH FEBRUARY 2010, PASSED BY THE COMMISSIONER (APPEALS ) XXVII, MUMBAI, FOR ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE FILED AN APPLICATION UNDER RULE-27 OF INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963, AND CONSEQUENTLY, THE VALIDITY OF RE- ASSESSMENT PROCEEDINGS. 3. LEARNED DEPARTMENTAL REPRESENTATIVE OBJECTED THE SA ME. 4. ON CAREFUL CONSIDERATION OF RIVAL CONTENTIONS, WE F IND THAT THE COMMISSIONER (APPEALS) HAS DECIDED THIS ISSUE AGAIN ST THE ASSESSEE AND THE MR. PRANLAL P. DAMANI ITA NO.3747/MUM./2010 2 ASSESSEE SEEKS TO SUPPORT THE ORDER OF THE FIRST AP PELLATE AUTHORITY ON THE GROUND WHICH HAS BEEN DECIDED AGAINST HIM. THIS IS PERMISSIBLE AND, CONSEQUENTLY, WE ALLOW THE ASSESSEE TO RAISE THIS I SSUE BY INVOKING RULE 27 OF INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. NOW , WE PROCEED TO DECIDE THIS APPEAL ON MERIT. 5. BRIEF FACTS OF THE CASE ARE LIKE THIS. THE ASSESSEE IS AN INDIVIDUAL AND HAS FILED HIS RETURN OF INCOME DECLARING INCOMES UN DER THE HEADS LONG TERM CAPITAL GAINS, SHORT TERM CAPITAL GAINS AND UNDER THE HEAD INCOME FROM OTHER SOURCES. HE ALSO CLAIMED EXEMPTION UNDER SECTION 54F OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR LONG TERM CAPITAL GAINS AROSE DUE TO PURCHASE OF 16,000 EQUITY SHARES OF BETALA GLOBAL S ECURITIES LTD., A MADRAS BASED COMPANY, DETAILS WHICH ARE GIVEN IN THE ASSES SMENT ORDER. THE ASSESSING OFFICER, FOR THE VARIOUS REASONS GIVEN IN HIS ORDER, HAS DOUBTED THE DATE OF PURCHASE OF THESE SHARES. IT SHOULD BE NOTE D THAT THE FACTUM THAT THE ASSESSEE HAS SOLD THE SHARES AND THE DATE OF SALE A ND THE AMOUNT RECEIVED TOWARDS SALE PROCEEDS IS NOT DISPUTED. THE ASSESSIN G OFFICER RECORDED VARIOUS REASONS FOR DISBELIEVING THE CLAIM OF THE A SSESSEE THAT IT HAS PURCHASED THE SHARES ON 8 TH 9 TH AND 10 TH JULY 2002. MAIN REASON ARE THAT, THE ASSESSEE HAS FAILED TO PRODUCE THE REQUISITE EVIDEN CE AND THAT THE ASSESSEES INVESTMENTS WERE MULTIPLIED BY 22 TIMES WITHIN A SP AN OF 1 YEARS AND THE TEST OF HUMAN PROBABILITY HAS TO BE APPLIED. HE DIS BELIEVE THE CLAIM FOR LONG TERM CAPITAL GAINS AND ASSESSED THIS INCOME UNDER T HE HEAD INCOME FROM OTHER SOURCES AND REFUSED THE CLAIM FOR DEDUCTION UNDER SECTION 54F. 6. ON APPEAL, THE FIRST APPELLATE AUTHORITY RELIED UPO N THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN MUKESH R. MAROLIA V/S ACIT, DECIDED IN ITA NO.1201/ MUM/2005, VIDE ORDER DATED 15 TH DECEMBER 2005, AND GRANTED RELIEF. AGGRIEVED, THE REVENUE IS IN APPEAL RAISING FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER (APPEALS) ERRED IN TREATING THE INCOME ARISING FROM LONG TERM CAPITAL GAIN ON PURCHASE / SALE OF S HARES AMOUNTING TO ` 16,63,200 AS GENUINE AND DIRECTING THE ASSESSING O FFICER TO GIVE THE DEDUCTION UNDER SECTION 54 OF THE ACT. MR. PRANLAL P. DAMANI ITA NO.3747/MUM./2010 3 2. THE COMMISSIONER (APPEALS) ERRED IN FOLLOWING TH E DECISION OF MUMBAI TRIBUNAL IN THE CASE OF MUKESH R. MAROLIA V/ S ACIT, WHEREIN IT IS HELD THAT ALL DOCUMENTARY EVIDENCES ARE AVAILABL E OF PURCHASE / SALE OF SHARES TRANSACTION IS TREATED AS GENUINE WHEREAS IN THIS CASE THE ASSESSEE HAS MANIPULATED THE TRANSACTIONS OF SHARES TO PURCHASE A FLAT. 7. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. SURENDRA K UMAR, TOOK THIS BENCH TO THE ORDER OF THE ASSESSING OFFICER AND CON TENDS THAT THE ASSESSEE HAS CLAIMED THAT PHYSICALLY SHARE CERTIFICATES HAVE BEEN DELIVERED BY M/S. BETALA GLOBAL SECURITIES LTD., IN THE NAME OF ASSES SEE, VIDE THEIR LETTER DATED 4 TH OCTOBER 2002, AND THAT THESE CERTIFICATES WERE NOT PRINTED CERTIFICATES BUT WERE ONLY HAND WRITTEN. THE ORIGINAL CERTIFICATES W ERE IN THE NAME OF ONE MS. MINAKSHI JAIN, AND WERE ISSUED ON 17 TH FEBRUARY 1996. HE POINTED OUT THAT BETALA GLOBAL SECURITIES LTD., IS NOT LISTED ON THE EXCHANGE AND, HENCE, NO DETAILS ARE AVAILABLE WITH BOTH THE EXCHANGES. HE R ELIED ON THE TEST OF HUMAN PROBABILITIES AND SUBMITTED THAT THE ENTIRE TRANSAC TIONS POINTED OUT TO MANIPULATION MADE BY THE ASSESSEE TO THE SHARE BROK ERS. HE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT T HE COMMISSIONER (APPEALS) COMMITTED A MISTAKE BY RELYING ON THE DEC ISION OF MUMBAI BENCH OF THIS TRIBUNAL IN MUKESH R. MAROLIA (SUPRA). 8. LEARNED COUNSEL FOR THE ASSESSEE, MR. M. SUBRAMANIA N, ON THE OTHER HAND, ON MERITS, RELIED ON THE ORDER OF PASSED BY T HE COMMISSIONER (APPEALS). ON THE ISSUE OF RE-OPENING, THE LEARNED COUNSEL PREFERRED TO THE REASONS RECORDED FOR RE-OPENING AND SUBMITTED THAT THERE IS NO OBSERVATIONS THAT THE ASSESSING OFFICER HAS REASON TO BELIEF THA T INCOME ESCAPED ASSESSMENT. HE POINTED OUT THAT A PERUSAL OF THE RE ASONS FOR RE-OPENING SHOW THAT IT WAS DONE TO SCRUTINIZE THE LONG TERM C APITAL GAIN TRANSACTIONS IN THE HANDS OF THE ASSESSEE. FOR THE PROPOSITION THAT ONLY THE REASONS AS RECORDED BY THE ASSESSING OFFICER HAS TO BE LOOKED INTO AND THAT THERE SHOULD BE A POSITIVE RECORDING THAT THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT . IN SUPPORT OF HIS ARGUMENTS, HE RELIED ON THE FOLLOWING JUDICIAL PRON OUNCEMENTS:- MR. PRANLAL P. DAMANI ITA NO.3747/MUM./2010 4 PRASHANT S. DOSHI V/S ITO & ANR., (2010) 324 ITR 15 4 (BOM.); AND GERMAN REMEDIES LTD. V/S DCIT & ORS., (2006) 285 IT R 026 (BOM.) 9. LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE CON TENTIONS OF THE LEARNED COUNSEL AND SUBMITTED THE ENTIRE EXERCISE O F RE-OPENING WAS DONE BECAUSE THE ASSESSING OFFICER WAS OF THE OPINION TH AT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BECAUSE OF MANIPULATION. 10. RIVAL CONTENTIONS WERE HEARD. ON CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D BEFORE US, WE HOLD AS FOLLOWS. ON THE ISSUE OF REOPENING, REASONS RECORDED ARE EXT RACTED BELOW:- DURING THE COURSE OF SURVEY ACTION, IT WAS REVEALED THAT THE ASSESSEE HAS DECLARED LONG TERM CAPITAL GAIN ON SALE OF SHAR ES AND CLAIMED EXEMPTION UNDER SECTION 34F OF THE ACT, FOR ACQUISI TION OF FLAT IN LIEU OF 5LONG TERM CAPITAL GAIN. IT IS ALSO SEEN THAT THE A SSESSEES INVESTMENTS WERE MULTIPLIED BY 22 TIMES WITHIN A SPAN OF 1 YEA RS. HENCE, THE TRANSACTIONS OF LONG TERM CAPITAL GAIN REQUIRED TO BE SCRUTINIZED IN THE HANDS OF THE ASSESSEE. THOUGH THE INTENTION OF THE ASSESSING OFFICER MIGH T HAVE BEEN THAT HE HAD A REASON TO BELIEF THAT INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT, THE SAME HAS NOT MANIFESTED ITSELF IN T HE REASONS OF RE- OPENING. THE FIRST PART OF THE REASONS ARE ONLY FAC TUAL RECORDING THAT THERE WAS A SURVEY AND IT WAS FOUND THAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN AND CLAIMED EXEMPTION UNDER SECTION 54 F. THE SECOND FACTUAL RECORDING IS THAT THE ASSESSEES INVESTMENTS HAVE M ULTIPLIED BY 22 TIMES WITHIN A SPAN OF 1 YEARS. THEREAFTER, ONLY RECORDI NG IS THAT THE LONG TERM CAPITAL GAINS ARE REQUIRED TO BE SCRUTINISED IN THE HANDS OF THE ASSESSEE. FOR SCRUTINY, NOTICE UNDER SECTION 143(2) OF THE ACT WO ULD SUFFICE. THE ASSESSMENT CANNOT BE RE-OPENED FOR SCRUTINING THE S AME. THERE SHOULD BE POSITIVE INDICATION IN THE REASONS RECORDED THAT TH E ASSESSING OFFICER HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN MR. PRANLAL P. DAMANI ITA NO.3747/MUM./2010 5 THIS CASE, NO SUCH RECORDING IS THERE. THIS GROUND IS, THUS, DECIDED IN FAVOUR OF THE ASSESSEE AND THE ORDER OF THE COMMISSIONER ( APPEALS) IS HEREBY UPHELD ON THIS GROUND. 11. SINCE WE HAVE DECIDED THE ISSUE OF RE-OPENING IN FA VOUR OF THE ASSESSEE, THE OTHER ISSUES RAISED BY THE REVENUE BE COME ACADEMIC IN NATURE, WHICH NEED NO SEPARATE ADJUDICATION BY US. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.4.2011 SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 28.4.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, C BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI