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

ITA 3748/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55376 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: M V SUBRAMANIAN
• Keywords: Share purchase agreement; Reason to believe
• Section: 148; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR(AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.3748/MUM/2010 ASSESSMENT YEAR 2004-05 THE ITO-16(1)(2), MATRU MANDIR, MUMBAI-400 007 VS. SHRI ALKESH P. DAMANI, 44, VIJAY CHAMBERS, TRIBHUVANDAS ROAD, MUMBAI-400 004 PAN-AEEPD 4270G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI P.K.B. MENON RESPONDENT BY: SHRI M.V. SUBRAMANIAN DATE OF HEARING : 5.9.2011 DATE OF PRONOUNCEMENT: O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 16.2.2010 PASSED BY THE LD. CIT(A)-27 FOR THE ASSESSMENT YEAR 2004- 05. 2. THE ASSESSEE FILED AN APPLICATION UNDER RULE-27 OF INCOME TAX(APPELLATE TRIBUNAL) RULES, 1963 WHICH IS AS FOL LOWS: THE PROCEEDINGS INITIATED BY ISSUANCE OF NOTICE U/ S. 148 OF THE ACT IS INVALID AND CONSEQUENTLY, THE ASSESSMENT ORD ER ALSO IS INVALID AND BAD IN LAW 3. LEARNED DEPARTMENTAL REPRESENTATIVE OBJECTED THE SAME. ITA NO. 3748/M/2010 2 4. ON CAREFUL CONSIDERATION OF RIVAL CONTENTIONS, W E FIND THAT THE COMMISSIONER (APPEALS) HAS DECIDED THIS ISSUE AGAIN ST THE ASSESSEE AND THE 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 27OF INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. NOW, WE PROCEED TO DECIDE THIS APPEAL ON MERIT. 5. IN THIS CASE, THE ASSESSING OFFICER HAD RECEIVED IN FORMATION FROM THE DIRECTORATE OF INVESTIGATION THAT THE ASSESSEE HAS SHOWN INCOME FROM LTCG ON SALE OF SHARES AND CLAIMED DEDUCTION U /S.54F OF THE I.T. ACT FOR ACQUISITION OF FLAT AND THE TRANSACTIO NS. THE ASSESSING OFFICER HAS STATED IN HIS ORDER THAT DURING THE YEA R THE ASSESSEE HAS SHOWN LTCG FROM SALE OF SHARE OF BETALA GLOBAL SECU RITIES. THEY HAD PURCHASED VARIOUS LOTS OF THESE SHARES ON 08.07.200 2, 09.07.2002, 10.07.2002 TOTALING 21000 SHARES FOR ` 1,06,050/- WHICH HA BEEN SOLD ON 18.11.2003, 20.11.2003 AND 21.11.2003 AND 25.11. 2003 FOR ` 23,10,459/-. THE ASSESSING OFFICER HAS STATED IN H IS ORDER THAT THE PURCHASE OF SHARES HAS BEEN ADJUSTED BY THE BROKER FROM THE PROFITS FROM SALE AND PURCHASE IN THE PREVIOUS YEAR. BUT T HE ASSESSING OFFICER HAS STATED THAT NO SUCH PROFIT HAS BEEN SHO WN IN THE RETURN. THE TRANSACTION HAS BEEN DONE THROUGH BROKERS M/S. FALGUN FINVEST AND THE SHARES HAVE BEEN TRANSFERRED IN THE NAME OF THE ASSESSEE IN 2002, EXACT DATE NOT MENTIONED AND THE PHYSICAL DEL IVERY OF THE SHARE CERTIFICATES HAS BEEN DELIVERED BY THE CO. BY LETTE R DATED 04.10.2002, WHICH WAS NOT TYPEWRITTEN, BUT HAND WRITTEN. THE ADDRESS OF THE CO. WAS IN MADRAS WHERE AS SHAERE BROKER WAS IN MUMBAI DEALIG IN THE NSE, THIS FACT WAS CONFIRMED BY THE ASSESSING OFFIC ER FROM THE EXCHANGE, HOWEVER, THE ASSESSING OFFICER HAS HELD T HAT HIS SHARE OF BETALA GLOBAL SECURITIES, COMPANY WAS NOT TRADED IN THE NSE AND BSE AND HE HAS HELD THAT IT IS SURPRISING THAT THE ASSESSEES PROFIT HAD INCREASED 22 TIMES WITHIN A SPAN OF ONE AND A H ALF YEARS WHICH WAS NOT POSSIBLE AND APPLYING THE TEST OF HUMAN PRO BABILITIES AS HELD ITA NO. 3748/M/2010 3 BY THE HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL, IT HAS BEEN HELD BY THE ASSESSING OFFICER THAT THIS WAS A CASE OF MANIPULATION BY THE ASSESSEE THROUGH THE STOCK BROK ER AND THE TRANSACTION WAS BOGUS JUST TO PURCHASE OF FLAT AS U NEXPLAINED INVESTMENT AND HAS HELD THAT THE INVESTMENT OF LTCG WAS BOGUS AND HAS MADE AN ADDITION OF ` 22,07,850/-. 6. ON APPEAL, THE FIRST APPELLATE AUTHORITY RELIED UPON 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 15TH DECEMBER 2 005, AND GRANTED RELIEF. AGGRIEVED, THE REVENUE IS IN APPEAL RAISING FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER (APPEALS) ERRED IN TREATING TH E INCOME ARISING FROM LONG TERM CAPITAL GAIN ON PURCHASE / SALE OF S HARES AMOUNTING TO` RS. 22,07,850/- AS GENUINE AND DIRECTING THE ASSESS ING OFFICER TO GIVE THE DEDUCTION UNDER SECTION 54 OF THE ACT. 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. P.K.B. MENON, TOOK THIS BENCH THROUGH THE ORDER OF THE ASSESSING OFFICER AND CONT ENDS 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 4TH 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 17TH FEBRUARY 199 6. 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 ITA NO. 3748/M/2010 4 ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT T HE COMMISSIONER(APPEALS) COMMITTED A MISTAKE BY RELYING ON THE DECISION OF M UMBAI BENCH OF THIS TRIBUNAL IN MUKESH R. MAROLIA (SUPRA). 8. LEARNED COUNSEL FOR THE ASSESSEE, MR. M. SUBRAMA NIAN, ON THE OTHER HAND, ON MERITS, RELIED ON THE ORDER OF PASSED BY THE COM MISSIONER(APPEALS). ON THE ISSUE OF RE-OPENING, THE LEARNED COUNSEL PREFER RED TO THE REASONS RECORDED FOR RE-OPENING AND SUBMITTED THAT THERE IS NO OBSERVATIONS THAT THE ASSESSING OFFICER HAS REASON TO BELIEF THAT INCOME ESCAPED ASSESSMENT. HE POINTED OUT THAT A PERUSAL OF THE REASONS FOR RE-OP ENING SHOW THAT IT WAS DONE TO SCRUTINIZE THE LONG TERM CAPITAL GAIN TRANS ACTIONS 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 TH ERE SHOULD BE A POSITIVE RECORDING THAT THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN SUPPOR T OF HIS ARGUMENTS, HE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS:- PRASHANT S. DOSHI V/S ITO & ANR., (2010) 324 ITR 154 (BOM.); AND GERMAN REMEDIES LTD. V/S DCIT & ORS., (2006) 285 ITR 026 (BOM.) 9. LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL AND SUBMITTED THE ENTIRE EXERCISE O F RE-OPENING WAS ONE 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. WE FIND THAT THE PRESENT CASE IS SIMILAR TO THAT OF THE CASE OF ASSESSEES FATHER PRANLAL P. DA MANI WHERE THE ITAT C BENCH IN ITA NO. 3747/M/2010 HAS HELD AS FOLLOWS: ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS. ON THE ISSUE OF REOPENING, REASONS RECORDED ARE EXT RACTED BELOW:- ITA NO. 3748/M/2010 5 DURING THE COURSE OF SURVEY ACTION, IT WAS REVEALED THAT THE ASSESSEE HAS DECLARED LONG TERM CAPITAL GAIN ON SALE OF SHARES AND CLAIMED EXEMPTION UNDER SECTION 34F OF T HE ACT, FOR ACQUISITION OF FLAT IN LIEU OF LONG TERM CAPITAL GA IN. IT IS ALSO SEEN THAT THE ASSESSEES INVESTMENTS WERE MULTIPLIED BY 22 TIMES WITHIN A SPAN OF 1 YEARS. HENCE, THE TRANSACTIONS OF LONG TERM CAPITAL GAIN REQUIRED TO BE SCRUTINIZED IN THE HAND S OF THE ASSESSEE. THOUGH THE INTENTION OF THE ASSESSING OFFICER MIGHT HAVE BEEN THAT HE HAD A REASON TO BELIEF THAT INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT, THE SAME HAS NOT MANIFESTED ITS ELF IN THE REASONS OF REOPENING. THE FIRST PART OF THE REASONS ARE ONLY FACTUAL RECORDING THAT THERE WAS A SURVEY AND IT WA S FOUND THAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN AN D CLAIMED EXEMPTION UNDER SECTION 54F. THE SECOND FACTUAL REC ORDING IS THAT THE ASSESSEES INVESTMENTS HAVE MULTIPLIED BY 22 TIMES WITHIN A SPAN OF 1 YEARS. THEREAFTER, ONLY RECORDI NG IS THAT THE LONG TERM CAPITAL GAINS ARE REQUIRED TO BE SCRUTINI SED IN THE HANDS OF THE ASSESSEE. FOR SCRUTINY, NOTICE UNDER S ECTION 143(2) OF THE ACT WOULD SUFFICE. THE ASSESSMENT CANNOT BE RE-OPENED FOR SCRUTINING THE SAME. THERE SHOULD BE POSITIVE I NDICATION IN THE REASONS RECORDED THAT THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT. IN THIS CASE, NO SUCH RECORDING IS THERE. THIS GROUN D IS, THUS, DECIDED IN FAVOUR OF THE ASSESSEE AND THE ORDER OF THE COMMISSIONER (APPEALS) IS HERE BY UPHELD ON THIS GR OUND. 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. RESPECTFULLY FOLLOWING THE ABOVE, WE DISMISS REVEN UES APPEAL. 11. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER, 2011 SD/- SD/- ( PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH SEPTEMBER, 2011 RJ ITA NO. 3748/M/2010 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI