Smt Narayan Sundra Bai, Indore V. ITO 2 (5), Indore

ITA 386/Ind/2018

AI Insights

The case involves Smt. Narayan Sundra Bai, who appealed against the orders of the Commissioner of Income-Tax (Appeals) and the Assessing Officer, which confirmed the addition of Rs. 42,12,998 as income from the sale of shares deemed as 'penny stocks'. The assessee had declared a long-term capital gain from the sale of shares of M/s Kappac Pharma Limited, which was treated as non-genuine by the AO based on certain investigations and enquiries. The Tribunal found procedural lapses in the non-supply of crucial documents to the assessee and remanded the case for a fresh assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130452 (ITAT-INDORE)
• Duration Of Justice: 5 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-06-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 25-04-2018
• Other Referred Cases: PCIT Vs. Swati Bajaj, ITA No. 06/2022
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Income from undisclosed sources; Penny stocks; Capital Gains
• Section: 131; 143(3); 142(1); 133(6); 143(2); 13; 22

Judgement Text

Page 1 of 13 आयकर अपीलȣय अͬधकरण, इंदौर Ûयायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.386/Ind/2018 Assessment Year: 2014-15 Smt. Narayan Sundra Bai, 29, Maa Vihar Colony, A.B.Road, Indore. बनाम/ Vs. ITO, 2(5), Indore. (Assessee / Appellant) (Revenue / Respondent) PAN: ALZPB1024B Assessee by Shri Ashish Goyal, CA Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 12.06.2023 Date of Pronouncement 05.09.2023 आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by appeal-order dated 01.03.2018 passed by learned Commissioner of Income-Tax (Appeals)-1, Indore [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 15.12.2016 passed by learned ITO-2(5), Indore [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2014-15, the assessee has filed this appeal on following grounds: 1. The order of the Ld. CIT(A) is bad in law as well as facts on record. 2. The Ld. CIT(A) has erred in confirming the action of the ld. AO of not providing the documents based upon which the additions have been made. Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 2 of 13 3. The Ld. CIT(A) has erred in confirming the applicability of section 68. 4. The Ld. CIT(A) has erred in confirming the addition made u/s 68 of Rs. 42,12,998/- being receipt on sale of shares. 5. The Ld. CIT(A) has erred in confirming the addition of Rs. 1,26,390/- being alleged on account of expenses for arranging receipts on sale of shares.” 2. Heard the learned Representatives of both sides at length and case- records perused. 3. Brief facts leading to present appeal are such that in the return of income filed for AY 2014-15, the assessee declared an exempted long-term capital gain of Rs. 42,00,998/- u/s 10(38) earned from sale of shares of M/s Kappac Pharma Limited [“Kappac”]. The case of assessee was subjected to scrutiny assessment by issuing notices u/s 143(2) and 142(1) of the act; the details as required by AO qua the exempted capital gain were filed by assessee from time to time. Before AO, the assessee claimed to have purchased 6,000 shares for Rs. 12,000/-; sold the same for Rs. 42,12,998/- and thereby earned the impugned capital gain of Rs. 42,00,998/-. However, while completing assessment, the AO treated the shares of Kappac as what is called “penny stock”; considered the exempted capital gain declared by assessee from those shares as bogus to show exempted (non-taxable) income u/s 10(38); thus rejected the exempted capital gain declared by assessee and made an addition of Rs. 42,12,998/- equivalent to sale consideration (+) estimated cost of Rs. 1,26,390/- incurred by assessee for arranging bogus capital gain. Being aggrieved, the assessee went in first appeal but could not succeed. Now, the assessee has come in next appeal before us assailing the orders of lower-authorities. 4. Ground No. 1 is general in nature and not pleaded/pressed during hearing. The same does not require any adjudication from us. Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 3 of 13 Ground No. 2: 5. In this ground, the grievance of assessee is such that the AO has made addition based on documents which were not provided to assessee and the CIT(A) is not justified in confirming AO’s action. 6. Ld. AR submitted that the assessee has declared genuine capital gain supported by all documents which were filed to lower authorities. But, however, the AO has treated the capital gain declared by assessee as non- genuine on the basis of certain enquiries claimed to have been conducted by department/him but those enquiries, if any, were conducted at the back of assessee and documents thereof were never provided to assessee. Referring to various paragraphs of assessment-order, Ld. AR demonstrated as under: (i) In Para No. 4.1 of assessment-order, the AO has relied upon searches/surveys/enquiries having been conducted by the Investigation Directorate of Income-tax Department, Kolkata with regard to the shares of Kappac in which the assessee did transactions. The AO issued show-cause notice dated 09.12.2016 to assessee, copy is placed at Page No. 22 to 23 of the Paper-Book and also re-produced below: Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 4 of 13 Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 5 of 13 Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 6 of 13 In response, the assessee filed reply dated 14.12.2016, copy placed at Page No. 24 of Paper-Book and also re-produced below: Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 7 of 13 Referring to Para No. 7 of aforesaid show-cause notice as well as Para No. 7 of assessee’s reply, Ld. AR invited attention to following show- cause made by AO and reply filed by assessee: AO’s show-cause: “7. As per searches/surveys/enquiries conducted by the Income-tax Department in the case of Penny Stock Companies, it has been admitted by several entities like Madhya Pradesh Stock Exchange Ltd. Indore, Destiny Securities Ltd. Kolkata, SMS Global Securities Ltd. Delhi, Religare Securities Ltd. New Delhi that M/s Kappac Pharma Ltd. was one of the scrips through which Long-term Capital Gains was arranged for beneficiaries. The SEBI had also suspended operations of trading of M/s Kappac Pharma Ltd. holding the same to be a penny stock in which manipulation were carried out. You are requested to show cause why your transactions in the scrips of M/s Kappac Pharma Ltd. not be held as non-genuine and the entire transaction be held as income from undisclosed sources.” Assessee’s reply: “I would like to mention in this matter that I have purchased/sold the shares of M/s. Kappac Pharma Limited as investor in the ordinary course and I am not aware about the searches/surveys/inquiries. Therefore, I request your honour that the long term capital gain earned by me should not be treated as non-genuine and should not be added in my total income. However, if still your honour has an adverse view, then please provide me copies of all the above mentioned searches/surveys/enquiries reports including the details/report of suspended operations of trading by SEBI so that I can go through the same and can comment in the matter.” Then, Ld. AR also carried us to Para No. 5 / Page No. 8-9 of assessment-order where the AO has re-produced the above reply made by assessee. Ld. AR contended that despite such categorical reply by assessee and a specific request made therein, the AO has neglected the assessee’s objection-cum-request and not provided the material to assessee. (ii) In Para No. 6 of assessment-order, the AO has mentioned to have issued notices u/s 133(6) to the purchasers of shares sold by Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 8 of 13 assessee. The AO has further mentioned that no reply was received, therefore the identity of purchasers is not ascertainable and the genuineness of transactions is not established. Ld. AR submitted that during entire assessment-proceeding, the AO never made the assessee aware of any such notice u/s 133(6) having been issued by him. The assessee has come to know of this fact alleged by AO only after reading of assessment-order. 7. Thus, Ld. AR contended that the AO has committed a serious error in making addition on the basis of material which was never supplied or brought to the knowledge of assessee. He contended that either the addition made by AO should be deleted or in the alternative those documents must be provided to assessee and a fresh opportunity be given to assessee to enable her submit explanation. 8. Per contra, Ld. DR for revenue defended the action of AO and objected to the prayer of assessee on following contentions: (i) Regarding non-providing of material of searches/surveys/enquiries conducted by Income-tax department by AO to assessee, Ld. DR submitted that the report dated 27.04.2015 released by Investigation Directorate of Income-tax Department, Kolkata is already in public domain and it need not be supplied to assessee as held by Hon’ble Kolkata High Court in PCIT Vs. Swati Bajaj, ITA No. 06/2022, dated 14.06.2022 (Para No. 3, 55, 65 of order). He further argued that the share of “Kappac” transacted by assessee is very much mentioned with Scrip Code 506938 at S.No. 33 in the list of “penny stocks” in the said report and the SEBI’s action of “suspended” operations is also mentioned therein, which any person, even the assessee, can easily find. Therefore, even if the report is now provided to assessee (though there is no need to supply, it can be easily downloaded from google), it Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 9 of 13 will not serve any useful purpose except lingering the proceeding before AO. (ii) Regarding non-providing of details of notices u/s 133(6) issued by AO to the purchasers of shares, Ld. AR carried us to Para No. 5 of assessment-order where the AO has also mentioned to have issued summon u/s 131 to assessee on 24.11.2016 for personal presence on 30.11.2016. Further, the AO has also mentioned that the assessee did not appear on appointed date. Ld. DR contended that AO issued notices u/s 133(6) to purchasers of shares only when the assessee did not comply with summon u/s 131. 9. In rejoinder, Ld. AR objected to the submission of Ld. DR and contended that the summon u/s 131, claimed to have been issued, is itself not on record. 10. We have considered rival submissions of both sides and perused the orders of lower-authorities. We find that the assessee is showing prejudiced because of non-supply of (i) Report of Investigation Directorate of Income-tax Department, (ii) Notices u/s 133(6) claimed to have been issued by AO to the purchasers, and (iii) Summon u/s 131 claimed to have been issued by AO. 10.1 With regard to non-supply of Report of Investigation Directorate, we re-produce below Para No. 65 of PCIT Vs. Swati Bajaj, ITA No. 06/2022, dated 14.06.2022 relied upon by Ld. DR: “65. Thus, the report submitted by the investigation department cannot be thrown out on the grounds urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non-furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, we have noted that the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (investigation) of all the states of the country. It is thereafter the concerned assessing officers have Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 10 of 13 been informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the assessing officers calling upon the assessee to explain the genuineness of the claim of LTCG/LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the some would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement, mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under Sections 143(2) and 142(1) of the Act they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the assessing officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under Section 143(3) of the Act. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non- furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case.” [Emphasis supplied] Thus, Ld. DR is generally very much correct in submitting that the Hon’ble High Court has held that the impugned report is available in public domain and there is no necessity to supply to assessee. But this is subject to a rider which is clearly discernible from the highlighted portion of the decision quoted above. If the assessee has made a specific request to AO during assessment-proceeding for supply of report, it becomes incumbent upon the AO to supply the same. In the present case, as seen earlier, the assessee Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 11 of 13 filed a specific letter dated 14.12.2016 in response to the show-cause notice issued by AO u/s 142(1) wherein the assessee categorically demanded report from AO. Had there been no such request or objection by assessee during assessment-proceeding, perhaps we would accepted the argument of Ld. DR but because of peculiar situation of present case wherein the assessee has made an objection-cum- request to AO for supply of report, we are unable to accept Ld. DR’s contention. Therefore, in present case, Ld. AR is very much correct in his contention. 10.2 With regard to non-supply of information of notices u/s 133(6) to assessee, although we agree that before issuing notices to the purchasers, the AO was not required to make the assessee aware of his proposed action. But when the AO makes adverse conclusion in assessment-order i.e. the transactions done by assessee are said to be non-genuine due to non-reply of notices by the notices, it was certainly incumbent upon AO to confront the assessee. We need not emphasize the basic principle of jurisprudence “audi alteram partem” which means nobody can be condemned unheard. Therefore, this contention of Ld. AR is also accepted. 10.3 In so far as the summon u/s 131 is concerned, here again the Ld. AR has seriously contended that there is no such summon on record. Ld. DR is not able to turn down the objection raised by Ld. AR. Therefore, it requires to be verified whether the AO has issued any such summon to assessee’s case or not; this contention requires probe at AO level. 11. In view of above discussions, it is much clear that the AO has committed a procedural mistake by not providing the required documents to assessee. Hence, in such a case, the only remedy is to remand this case back to file of AO who shall provide the copy of documents/material required by assessee to counter her case; consider assessee’s submissions Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 12 of 13 thereon and thereafter pass a proper order uninfluenced by his previous order. Accordingly, we remand this ground back to the file of AO. This ground is allowed for statistical purpose. Ground No. 3 to 4: 12. All these grounds challenge the merits of addition made by AO. Learned Representatives of both sides made a brief submission on this part also. Ld. AR for assessee contended that the assessee has declared genuine capital gain supported by all documentary evidences filed to lower authorities and copies filed in Paper-Book too. On the other hand, Ld. DR for revenue contended that the assessee is residing at Indore but the shares were purchased from seller of Ahmedabad; the purchase is made in cash and off-market; this is the only transaction done by assessee and the assessee has not done any other transaction of shares; the assessee claims to have purchased 6,000 shares @ Rs. 2/- per share but sold them @ approx. Rs. 702/- per share. The sale price is astronomical about 350 times of purchase price and the fundamentals of company do not support. Both sides also relied upon certain judicial rulings supporting their respective arguments for and against the addition. But since we have restored this appeal to the file of AO for a fresh adjudication in foregoing paragraph while adjudicating Ground No. 2, we are not expressing any view on the merit of the case so as to limit the assessment procedure before the AO. The AO is Smt. Narayan Sundrabai, Indore v. ITO 2(5), Indore ITA No.386/Ind/2018 Assessment year 2014-15 Page 13 of 13 free to take decision on merits in accordance with law. These grounds are, therefore, kept open. 13. Resultantly, this appeal of assessee is allowed for statistical purpose in terms mentioned above. Order pronounced in the open court on 05.09.2023. Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore Ǒदनांक /Dated : 05.05.2023. CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore