ITO 19(1)(5), MUMBAI V. HANSABEN N SHAH, MUMBAI

ITA 44/MUM/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2402 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2016
• Court: TRIBUNAL
• Department Lawyers: SHRISMT SUMAN KUMAR
• Assessee Lawyers: DR P DANIEL
• Keywords: Reopening of assessment; Bogus Share capital; Unexplained expenditure; Earning of tax free income; Accommodation entries; Assessment record; Sham transactions
• Section: 69C; 148

Judgement Text

IN THE TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & RAMLAL NEGI (JM) I.T.A. NO. 44 /MUM/20 16 (ASSESSMENT YEAR 20 06 - 07 ) THE ITO - 19(1)(5) ROOM NO. 215 MATRU MANDIR MUMBAI - 400 007. VS. SMT. HANSABEN N. SHAH 502, CHANDANBALA RATILAL THAKKER MARG MUMBAI - 400 006. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAKPS0529G ASSESSEE BY DR.P. DANIEL DEPARTMENT BY SHRI/SMT. SUMAN KUMAR DATE OF HEARING 3.10 . 201 6 DATE OF PRONOUNCEMENT 19 . 10 . 201 6 O R D E R PER B.R. BASKARAN (AM) : - THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 30 - 10 - 2015 PASSED BY LD CIT(A) - 30, MUMBAI FOR ASSESSMENT YEAR 2006 - 07, WHEREIN THE LD CIT(A) HAS CANCELLED THE ASSESSMENT OF LONG TERM CAPITAL GAIN ARISING ON SALE OF SHARES UNDER THE H EAD INCOME FROM OTHER SOURCES AND ALSO DELETED THE ADDITION MADE TOWARDS COMMISSION CHARGES. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUES ARE DISCUSSED BY LD CIT(A) AS UNDER: - B RIEF FACTS OF THE CASE ARE DURING THE COURSE OF APPELLANT PROCEEDINGS BEFORE THE CIT (A) - 37, MUMBAI, ONE SHRI NARENDRA SHAH SUBMITTED A PAPER BOOK CONTAINING A COMPREHENSIVE LIST OF NAMES AND ADDRESSES OF 1314 PERSONS WHO LAUNDERED THEIR BLACK MONEY AND BECOME BENEFICIARIES OF THE IMPUGNED PENNY STOCK SCAM. THE BENEFICIARIE S HAVE AVAILED FINANCIAL ACCOMMODATION ENTRIES FOR BOGUS SHARE APPLICATION MONEY, BOGUS LONG TERM/SHORT TERM CAPITAL GAIN FOR SHARES OF CERTAIN COMPANIES INCLUDING A COMPANY BY NAME M/S OSIAN LPG BOTTLING LTD., ON VERIFICATION, IT WAS OBSERVED BY THE AO , THAT THE APPELLANT NAME IS EXISTING IN THAT LIST. DURING THE F.Y. 2005 - 06 RELEVANT TO THE A.Y. 2006 - 07 THE APPELLANT HAD SOLD 92600 SHARES OF M/S OSIAN LPG BOTTLING LTD. FOR A SA LE CONSIDERATION OF ` 46,20,342/ - AND EARNED A LONG TERM CAPITAL GAIN OF 2 ` 43,31,021/ - WHICH THE APPELLANT HAD CLAIMED AS EXEMPT U/S.10(38) OF THE ACT. BASED ON THE INFORMATION AND ALSO THE APPELLANT NAME APPEARS IN THE LIST OF BENEFICIARIES WHO OBTAINED ACCOMMODATION ENTRIES, WHO HAD SHOWN LONG TERM CAPITAL GAIN FROM THE P URCHASE AND SALE OF M/S. OSIAN LPG BOTTLING LTD., LD. AO ISSUED A NOTICE U/S 148 OF THE ACT ON 12 - 03 - 2013 TO THE APPELLANT. IN RESPONSE TO THE SAME THE APPELLANT REQUESTED TO TREAT THE RETURN OF INCOME FILED ON 30 - 10 - 2006 AS RETURN FILED IN RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT. THE APPELLANT WAS PROVIDED WITH THE REASONS RECORDED FOR ISSUE OF NOTICE AND OBJECTIONS RAISED REGARDING REOPENING OF ASSESSMENT WERE REJECTED BY PASSING A SPEAKING ORDER BY THE AO. THEREAFTER THE ASSESSMENT WAS TAKEN UP AND ON GOING THROUGH THE SUBMISSIONS AND CONTENTIONS OF THE APPELLANT AT LENGTH, THE AO HELD THAT THE APPELLANT IS IN RECEIPT THROUGH A BOGUS TRANSACTION IN THE FORM OF SALE CONSIDERATION OF 46,30,342/ - WHICH WAS SHOWN AS LONG TERM CAPITAL GAIN OF 43,31,0 21/ - AND CLAIMED AS EXEMPT INCOME. THE SAME WAS ASSESSED AS INCOME EARNED FROM 'OTHER SOURCES'. THE APPELLANT WAS FURTHER ASKED BY THE . A0, TO EXPLAIN AS TO WHY COMMISSION SHOULD NOT BE ESTIMATED 5% FOR OBTAINING ACCOMMODATION ENTRIES/SHAM TRANSACTIONS MAD E. EXPLANATIONS OFFERED BY THE APPELLANT WAS NOT ACCEP TED BY THE AO AND AN AMOUNT OF ` 2,16,551/ - @ 5% OF TOTAL TRANSACTION AS COMMISSION PAID AND IS TREATED AS UNEXPLAINED EXPENDITURE U/S. 69C OF THE ACT AND ADDED TO THE TOTAL INCOME. 3. BEFORE LD CIT(A), THE ASSESSEE CHALLENGED THE REOPENING OF ASSESSMENT AND ALSO THE ADDITION MADE BY THE AO ON MERITS. IT WAS SUBMITTED THAT THE ASSESSEE IS MAKING INVESTMENT IN SHARES FOR THE PAST 15 YEARS AND HE HAS HELD SHARES OF ABOUT 15 COMPANIES DURING THE YE AR UNDER CONSIDERATION. ACCORDINGLY HE SUBMITTED THAT HE HAD MADE INVESTMENT IN THE SARES OF M/S OSIAN LPG BOTTLING LTD IN THE ORDINARY COURSE OF MAKING INVESTMENT. HE ALSO FURNISHED EVIDENCES FOR PURCHASE AND SALE OF SHARES. 4. THE LD CIT(A) CO NSIDERED THE CONTENTIONS OF THE ASSESSEE VIS - - VIS THE FACTS AVAILABLE ON RECORD. THE LD CIT(A) FOUND MERIT IN THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY SET ASIDE THE ORDER PASSED BY THE AO ON THE ISSUE OF LONG TERM CAPITAL GAINS AS WELL AS COMMISSI ON EXPENSES. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT DISCUSSIONS MADE BY LD CIT(A): - 5.4 IN THE STATEMENT OF FACTS ENCLOSED TO THE APPEAL MEMO AND IN THE SUBMISSIONS, THE APPELLANT ELABORATELY COUNTERED THE TREATMENT OF LTCG AS 'INCOME FROM OTHER SOURCES', BY THE LD. AO. BRIEFLY THE SUBMISSIONS OF THE APPELLANT ARE THAT THE IMPUGNED LTCG WAS EARNED DURING THE YEAR BY SELLING 92600 SHARES OF M/S OSIAN LPG BOTTLING LTD., A LISTED COMPANY 3 WITH THE BSE WHICH WERE PURCHASED FROM A REGISTERED BROKER M/S G R PANDYA SHARE BROKING LTD IN APRIL, 2004 AND NOT FROM SHRI NARENDRA SHAH AS STATED BY THE AO. THE SHARES WERE TRANSFERRED IN THE NAME OF APPELLANT IN PHYSICAL FORM AND LATER GOT IT CREDITED TO HIS DEMAT ACCOUNT AND SOLD THROUGH M/S SHAREKHA N LTD. AGAIN A BSE REGISTERED BROKER THROUGH ONLINE TRADING SYSTEM AFTER PAYMENT OF STT A T THE PREVAILING MARKET RATES IN THE MONTH OF JULY AND AUGUST, 2005. THE SHARES WERE HELD MORE THAN 12 MONTHS AND THE CAPITAL GAINS ARE ELIGIBLE FOR EXEMPTION U/S 10( 38) OF THE ACT. THE STATEMENT OF NARENDRA SHAH WAS NOT FURNISHED, THOUGH SPECIFICALLY ASKED AND HE DOESN'T HAVE ANY CONTACT WITH SRI SHAH AND HIS NAME IS ALSO HEARD FOR THE FIRST TIME. THE PAYMENT FOR THE SALE TRANSACTION WAS RECEIVED THROUGH BANKING CHANN ELS FROM M/S SH A ERKHAN AND THE PURCHASING AND SELLING BROKER ARE NON - RELATED TO HIM. ALL THE DETAILS LIKE PURCHASE AND SALE OF SHARES, DEMAT STATEMENT, CONTRACT NOTES AND BILLS FOR PURCHASE AND SALE, BANK STATEMENT AND DEMAT REPORT FORM WERE SUBMITTED TO T HE AO AND THE TRANSACTIONS WERE REFLECTED IN THE BOOKS OF ACCOU NT AND SHOWN IN THE RETURNS OF INCOME. THE APPELLANT IS IN THE BUSINESS OF SHARES APART FROM THIS SCRIP HE HAS INVESTED IN 15 COMPANIES AND INVESTMENT IN THIS COMPANY IS IN THE COURSE OF ORDINA RY COURSE OF INVESTMENT DECISION AND TO INVESTMENT IN PENNY STOCK IS LOW INVESTMENT, WITH LEAST RISK AS THE AMOUNT INVOLVED IS NOT MUCH. THE AO FINDINGS TO CO M E TO THE CONCLUSION IS FACTUALLY INCORRECT BECAUSE ALL THE DETAILS WERE FURNISHED DURING THE COUR SE OF ASSESSM ENT PROCEEDINGS AND SINCE THE AO NOT DOUBTED THE PURCHASE TRANSACTION THE SALE TRANSACTION IS AUTOMATICALLY LEAD TO GENUINE ONE A N D THE SHARES SOLD CAN BE EASILY IDENTIFIABLE WHICH ARE VISIBLE FROM THE DEM AT ACCOUNT AS THE APPELLANT FULFILLS A LL THE CONDITIONS PRESCRIBED IN SECTION 10(38) OF THE ACT, THE GAIN OF THE SHARES QUALIFY FOR EXEMPTIONS AND THE CONTENTION OF THE LD AO THAT THE SAME IS BOGUS AND SHAM IS MERELY PRESUMPTION AND BASED ON SURMISES ONLY WITHOUT HAVING ANY JUSTIFIABLE REASON OR EVIDENCE. THE APPELLANT RELIED ON THE FOLLOWING DECISIONS AND REQUESTED TO DELETE THE ADDITION MADE: 1) HANSA H VASA VS. ITO (ITA NO, 6417/MUM/2012 2) ANDAMAN TIMBER INDUSTRIES VS. COMMISSIONER OF CENTRAL EXCISE CIVIL APPEAL NO. 4226 OF 2006 DATED 02/09/20 15 3) GG DIAMOND INTERNATIONAL VS. DY. CIT (2006) 104 TTJ (MUM.)(TRIB.) 4) BALAJI TEXTILE INDUSTRIES (P) LTD VS. ITO (1994) 49 LTD 177 (MUM.) 5) DLALPAT SINGH CHOUDHARY VS. ACIT (2012) 25 TAXMAN 153 (JODHPUR) 6) ITO VS. LAKHMANI MEWAL DAS (1976) 103 ITR 437 (SC) 7) MRS. JALPA M RUGHANI VS. ITO 25(3)(2) (ITA NO, 7186/MUM/2103 8) ACIT VS. SRI ISLAMUDDIN MANSURI (ITA NO. 5050/MUM/2008 9) ITA NO.1175/MUM/2012, SMT DURGADEVI MUNDRA VS. ITO 10) ITA NO. 1176/MUM/2012, SRI MAHESH MUNDRA VS. ITO 11) ITA NO. 1442/MUM/2010, ITO VS. TRUPTIC SHAH 12) I TA NO. 6108/MUM/2009, CHANDRAKANT BABULAL SHAH VS. ITO 4 13) ITA NO. 330/JODH/2011, SRI PANKAJ RAJ SHAH, PALI VS. ITO 14) ITA NO. 659/PN/2011, ITA NO. 651/PN/2011 15) SMT. MAJULA BEN SHAH VS. ITO (ITA NO. 3112/MUM/2014) 16) MUKESH MORALIA VS. ADDL. CIT (ITA NO. 1201/MUM/200 5) 17) SRI VASANTRAJ BIRAWAT VS. ACIT (ITA NO. 989/MUM/2010) IN VIEW OF THE ABOVE SUBMISSIONS AND CASE LAWS, THE APPELLANT PRAYED THAT THE ADDITION MADE ON ACCOUNT OF LTCG AS INCOME FROM OTHER SOURCES TO BE DELETED. 5.5 PERUSED THE SUBMISSIONS AND CASE LAWS FURNISHED BY THE APPELLANT AND ALSO CALLED THE ASSESSMENT RECORDS FROM THE ASSESSING OFFICER AND VERIFIED. THE APPELLANT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FURNISHED SEVERAL DETAILS LIKE BANK STATEMENT, BROKERS COVER NOTE IN PROOF OF PURCHASE AN D SALE OF SHARES, DEMAT ACCOUNT STATEMENT, DEMAT REQUISITION SLIPS LEDGER ACCOUNTS ETC., VIDE HIS SUBMISSIONS DATED 10.3.2014, WHICH ARE VERY MUCH AVAILABLE IN THE ASSESSMENT RECORDS. HOWEVER IN THE ASSESSMENT ORDER PASSED THE AO STATED THAT THE SAME ARE N OT FURNISHED THOUGH REQUESTED, WHICH IS FACTUALLY INCORRECT. 5.6 COMING TO THE MERITS OF THE CASE, AS SEEN FROM THE RECORDS, THE APPELLANT PURCHASED 60,000 SHARES OF M/S OSIAN LPG BOTTLING LTD ON 16 - 04 - 2004 FOR ` 1,83,240 AND ANOTHER 60,000 SHARES ON 21 - 0 4 - 2004 FOR ` 1,95,240/ - OF THE SAME COMPANY THROUGH M/S G R PANDYA SHARE BROKING LTD. THE NUMBER OF SHARES OF 1,20,000 AND THE VALUE OF ` 3,78,479/ - WERE DULY REFLECTED IN THE BALANCE SHEET FOR THE YEAR ENDING MAR, 2005. PAPER SHARES WERE DEMATERIALIZED SUBSEQUENTLY AND REQUEST FOR DEMATERIALISATION IS ALSO AVAILABLE ON RECORD. OUT OF THE TOTAL SHARES, 92,600 SHARES WERE SOLD ON DIFFERENT DATES IN THE MONTH OF JULY AND AUGUS T, 2005 FOR A CONSIDERATION OF ` 46,20,342/ - , THROUGH M/S SSKI INVESTOR SERVICES P VT. LTD. BOTH THE PURCHASE AND SALE TRANSACTIONS WERE ENTERED THROUGH MEMBERS OF BOMBAY STOCK EXCHANGE. IN PROOF OF THE SAME THE APPELLANT FURNISHED THE BROKERS COVER NOTES AND THE PAYMENTS AND RECEIPT WAS THROUGH BANKING CHANNELS, AS SEEN FROM THE BANK AC COUNTS FURNISHED. THE SHARES WERE HELD BY THE APPELLANT FOR MORE THAN A YEAR. IN VIEW OF THE SAME THE GAIN OF ` 43,31,021/ - IS TO BE TREATED AS LTCG AND IS EL IGIBLE FOR EXEMPTION U/S 10(38) OF THE ACT, SINCE THE SAME ARE SOLD THROUGH THE S TOCK EXCHANGE AND SUFFERED THE STT. THE APPELLANT ALSO QUOTED SEVERAL CASES WHERE THE HON'BLE ITAT DELETED THE ADDITION MADE ON THE SIMILAR GROUNDS. THE FACTS OF THE CASE ARE ALSO EXACTLY SIMILAR TO THAT OF THE CASES QUOTED, WHERE RELIEF IS GIVEN BY THE HON'BLE ITAT. IN VI EW OF THE FACTS ON RECORD AND ALSO RESPECTFULLY FOLLOWING THE DECISIONS OF THE ITAT ON THIS ISSUE, IT IS HELD THAT THE AO TREATING THE GAIN AS 'INCOME FROM OTHER SOURCES' IS NOT CORRECT AND IS ACCORDINGLY DELETED. THE AO IS DIRECTED TO ALLOW THE GAIN RECEI VED ON THE SALE OF SHARES OF M/S OSIAN LPG BOTTLING LTD., OF ` 43,31,021/ - AS LTCG AND ALLOW EXEMPTION U/S 10(38) OF THE ACT. 5 SINCE THE LD CIT(A) SET ASIDE THE ORDER PASSED BY AO ON THE ABOVE SAID ISSUE, THE LD CIT(A) ALSO DELETED THE ADDITION MADE ON ES TIMATED BASIS TOWARDS COMMISSION EXPENSES. AGGRIEVED BY THE ORDER PASSED BY LD CIT(A), THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. THE LD D.R PLACED STRONG RELIANCE ON THE ORDER PASSED BY AO, WHILE THE LD A.R PLACED STRONG RELIANCE ON THE ORDER P ASSED BY LD CIT(A). HAVING HEARD RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE ORDER PASSED BY LD CIT(A) DOES NOT CALL FOR ANY INTERFERENCE . W E NOTICE THAT THE AO HAS SIMPLY PLACED RELIANCE ON THE REPORT GIVEN BY THE INVESTIGATION WING OF THE DEPARTMENT WITHOUT CONDUCTING ANY INDEPENDENT VERIFICATION OF THE MATTER. MORE PARTICULARLY THE EVIDENCES FURNISHED BY THE ASSESSEE TO SUPPORT THE PURCHASE AND SALE OF SHARES HAVE NOT BEEN PROVED TO BE BOGUS IN NATURE. ONE MORE PECULIAR FEATURE AVAILABLE IN THIS C ASE IS THAT THE ASSESSEE IS REGULARLY INVESTING IN SHARES FOR THE PAST 15 YEARS AND DURING THE YEAR UNDER CONSIDERATION HE HAS HELD ABOUT 15 SHARES. THESE FACTS, IN A WAY, SHOW THE BONAFIDES OF THE ASSESSEE. W E NOTICE THAT THE FIRST APPELLATE AUTHORITY H AS ANALYSED THE FACTS PREVAILING IN THE INSTANT CASE IN PROPER PERSPECTIVE AND HAS TAKEN CONSCIOUS DECISION ON THE MATTER AND THE SAME CANNOT BE FOUND FAULT WITH. ACCORDINGLY WE CONFIRM THE ORDER PASSED BY LD CIT(A). 6. IN THE RESULT, THE APPEAL FIL ED BY THE REVENUE IS DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 19 . 10 .2016 SD/ - SD/ - (RAMLAL NEGI ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 19 / 10 / 20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI