The ITO, Ward-5(3)(1), Ahmedabad V. Shri Bijranlal Sanjaykumar- HUF, Ahmedabad

ITA 506/AHD/2020

AI Insights

The case involves three appeals by the Revenue against the orders of the CIT(A) for the Assessment Year 2012-13, concerning the deletion of disallowances made under section 10(38) of the Income Tax Act. The assessee had claimed LTCG from the sale of shares of M/s. Gemstone Investment Limited, which was identified as a penny stock involved in a tax evasion scam. The Assessing Officer had made additions to the income of the assessee, which were later deleted by the CIT(A). The Tribunal, however, reinstated the additions, citing that the CIT(A) had ignored substantial evidence indicating that the gains were not genuine and were part of an organized tax evasion scheme.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129773 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-12-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2020
• Other Referred Cases: Principal Commissioner of Income Tax vs. Parasben Kasturchand Kochar, Priti Paras Savia vs. ITO, Shree Sayan Vibhag Sahkari vs. DCIT, Varshanen Sanathbhai Patel vs. ITO, Pratik Suryakant Shah vs. ITO, Sandipkumar Parsottambhai Paltel vs. ITO, CIT vs. Pooja Agarwal, Vidhi Malhotra vs. ITO, Swati Luhtra vs. ITO, Kamla Devi vs. ITO, Divya Jyoti Diamonds Limited vs. ITO, Tata Capital Financial Services Limited vs. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 64

Judgement Text

ITA Nos.506, 507 & 508/Ahd/2020 A.Ys.2012-13 for all Page 1 of 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.506/Ahd/2020 Assessment Year: 2012-13 The Income Tax Officer, vs. Bajranglal Sanjaykumar, HUF Ward-5(3)(1), Ahmedabad. 91, Hirabhai Market, D.B. Road, Kankariya, Ahmedabad – 380 022. [PAN – AADHB 1214 L] ITA No.507/Ahd/2020 Assessment Year: 2012-13 The Income Tax Officer, vs. Sunilkumar Tanmay, HUF Ward-5(3)(1), Ahmedabad. 91, Hirabhai Market, D.B. Road, Kankariya, Ahmedabad – 380 022. [PAN – AAIHS 6378 C] ITA No.508/Ahd/2020 Assessment Year: 2012-13 The ACIT, vs. Sunil Bajranglal Hurkat, HUF Circle – 2(1)(1), Ahmedabad. 91, Hirabhai Market, D.B. Road, Kankariya, Ahmedabad – 380 022. [PAN – AADPH 0985 Q] (Appellants) (Respondents) Assessees by : Shri Sudhir Mehta, Advocate Respondents by : Shri Alpesh Parmar, Sr. DR Date of hearing : 14.12.2022 Date of pronouncement : 08.02.2023 O R D E R These three appeals are filed by the Revenue against three different orders, all dated 06.08.2020, passed by the CIT(A)-5, Ahmedabad for the Assessment Years 2012-13 for all these appeals. ITA Nos.506, 507 & 508/Ahd/2020 A.Ys.2012-13 for all Page 2 of 6 2. Common grounds have been raised by the Revenue in all these appeals and, therefore, grounds raised in ITA No.508/Ahd/2020 are being reproduced as under :- “1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.6,76,623/- made u/s.10(38) of the I.T. Act. 2. The Ld. CIT(A) has erred in facts and in law in deleting the disallowance u/s.10(38) of the Act holding that the Long Term Capital Gain earned by the assessee from sale of shares of penny scrip i.e. M/s. Gemstone Investment Limited (GIL) is genuine income. 3. The Ld. CIT(A) had erred in facts and in law holding that the Long Term Capital Gain earned by the assessee is genuine, totally ignoring the financial strength of the company as well as the facts that the company did not undertake substantial business activity. 4. on the facts and circumstances, the ld. CIT(A) ought to have upheld the order of the u/s.143 r.w.s. 147 of the Act passed by the Assessing Officer. 5. It is therefore prayed that the order of the Ld. CIT(A) may be set aside and that of the order of the Assessing Officer be restored to the above extent. 6. It is further prayed that the present appeal comprises the issue of organized tax evasion scam, involving claim of bogus long term capital gain through penny stocks for which the CBDT vide Circular No.23 of 2019 dated 06.09.20119 read with OM dated 16 th September, 2019 exempted such cases from monetary limit for filing appeal, hence the appeal be decided on merits.” 3. Firstly we are taking ITA No.508/Ahd/2020. The assessee is an individual and during the year under consideration derived income under the head salary, business and other sources. The assessee filed return of income on 12.07.2012 declaring total income of Rs.10,33,470/-. The Assessing Officer observed that M/s. Gemstone Investment Limited is a penny stock company and the assessee made non-genuine and bogus claim through its trade in this scrip in the F.Y. 2011-12 related to A.Y. 2012-13. The information was forwarded to the concerned office of the Assessing Officer by DDIT (Inv), Unit-5(2), Mumbai. The assessee sold shares of Rs.9,09,500/- of M/s. Gemstone Investment Limited. The Ld. AR observed that the there was substantial increase in the high price of the same scrip despite the company regularly ITA Nos.506, 507 & 508/Ahd/2020 A.Ys.2012-13 for all Page 3 of 6 shown profits and poor financial health. The analysis of share price movement of Banas Finance shows a bell shape curve which indicates that the price of the shares was artificially inflated due to circular trading, even though the trade volume is low. The share of M/s. Gemstone Investment Limited were traded at Rs.98/- in May 2009, Rs.202/- in July 2010 and Rs.6/- in March 2011. The sharp changes in share prices are not in consonance with the companies any actual activities or financial modulation. Thus, the assessee has booked bogus LTCG to the extent of Rs.9,09,500/- for A.Y. 2012-13. The Assessing Officer made addition of Rs.6,76,623/-. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee. 5. Ld. AR submitted that the scrip in the present case is invested with M/s. Gemstone Investment Limited which was banned for trading in certain penny stocks vide SEBI order No.WTM/RKA/EFD-DRA-II/06/2016 including M/s. Gemstone Investment Limited. The Assessing Officer in the present A.Y. has given the profits and poor financial health of the said company and, therefore, the activities of financial modulation was properly taken into account by the Assessing Officer but the CIT(A) has totally ignored the same. The Ld. AR submitted that the assessee has purchased these shares through registered broker on various dates and the contract note to that effect has been produced. The Ld. AR further submitted that the transaction in respect of sale of the said scrip was also entered through registered broker. Therefore, the Ld. AR relied upon the order of the CIT(A). 6. Heard both the parties and perused all the relevant material available on record. From the perusal of the Assessment Order, the Assessing Officer has given the details related to authorised capital and issued capital of M/s. Gemstone Investment Limited which is the scrip invested in the present case. For the A.Y. 2011- 12 the said scrip does not have any business at all and only had authorised capital and issued capital with investments and loans and advances. Thereafter, the said scrip has continuous sales and investments. The share price of M/s. Gemstone Investment Limited moved from Rs.98/- in May 2009 to Rs.202/- in July 2010. Thereafter, there is a sharp fall in price again to Rs.6/- per share in the month of ITA Nos.506, 507 & 508/Ahd/2020 A.Ys.2012-13 for all Page 4 of 6 March 2011 and the current price scrip for A.Y. 2012-13 was Rs.0.57 per share. Thus, there was phenomenal price rise & fall that occurred in the share of the M/s. Gemstone Investment Limited. The Assessing Officer has also quoted the investigation carried out by SEBI in respect of M/s. Gemstone Investment Limited and the order passed by the SEBI. These aspects were not considered by the Assessing Officer but has only relied upon various decisions. The CIT(A) simply stated that the assessee was not related to that company of which shares has been purchased and hence shares can be held in physical form and the payment of sale of shares have also been received through banking channels but in fact the contract note provided by the assessee the details of M/s. Gemstone Investment Limited except for few transactions that of 5000 scrip taken on 26.06.2009. Subsequent holding statement of M/s. Gemstone Investment Limited that of 50000 quantity dated 31.12.2010 has given description of the rate at Rs.8.49. The broker statement from 01.03.2011 to 31.03.201 has quoted the same but from 01.03.2010 to 31.03.2010 the 5000 shares were credited and subsequently debited in the broker statement. The assessee thus has taken 55000 scrip of the said company but only details of 5000 shares completely has been given. The CIT(A) has not taken cognisance of all these aspects and simplicitor allowed the appeal of the assessee. The assessee has relied upon various case laws which are as follows :- 1) Principal Commissioner of Income Tax vs. Parasben Kasturchand Kochar, (2021) 130 taxmann.com 177 (SC) 2) Priti Paras Savia vs. ITO (2021) 130 taxmann.com 59 (HC-Gujarat) 3) Shree Sayan Vibhag Sahkari vs. DCIT (2016) 69 taxmann.com 245 (HC- Gujarat) 4) Varshanen Sanathbhai Patel vs. ITO (2015) 64 taxmann.com 179 (HC- Gujarat) 5) Pratik Suryakant Shah vs. ITO (2017) 77 taxmann.com 260 (Ahmedabad- Tribunal) 6) Sandipkumar Parsottambhai Paltel vs. ITO (2022) 137 taxmann.com 373 (ITAT- Surat) 7) CIT vs. Pooja Agarwal (2018) 99 taxmann.com 451 (HC Rajasthan) 8) Vidhi Malhotra vs. ITO (2019) 101 taxmann.com 361 (Delhi) ITA Nos.506, 507 & 508/Ahd/2020 A.Ys.2012-13 for all Page 5 of 6 9) Swati Luhtra vs. ITO (2020) 115 taxmann.com 167 (Delhi) 10) Kamla Devi vs. ITO (2017) 88 taxmann.com 773 (Bombay-Tribunal) 11) Divya Jyoti Diamonds Limited vs. ITO (2021) 128 taxmann.com 419 (HC-Gujarat) 12) Tata Capital Financial Services Limited vs. ACIT (WP No.546/2022 (HC- Bombay). The Ld. AR also relied upon the decision of Hon’ble Apex Court in the case of DCIT vs. Vijay Pal Singh (2021) 130 taxman.com 292 (SC) as well as O.M. F. No.279/Misc./M-93/2018-ITJ(PT) and Circular No.23 of 2019 as well as Circular No.17 of 2019. All these case laws as well as the Circulars mentioned by the assessee will be applicable when the assessee has given the foolproof evidence to the effect that the scrip was genuinely purchased and was properly moved and there was no collusion in respect of the price variations on behalf of the assessee. The assessee has not given each and every details about the same. Therefore, the CIT(A) was not right in deleting the addition. Hence, appeal of the Revenue being ITA No. 508/Ahd/2020 is allowed. 7. As relates to ITA No.506/Ahd/2020 the scrip is same and the assessee has taken 50000 shares of the same company through the same broker and the evidences to that effect shown by the assessee are related to 5000 shares only. Here also the CIT(A) was not right in deleting the additions, hence appeal being ITA No.506//Ahd/2020 filed by the Revenue is allowed. 8. As regards ITA No.507/Ahd/2020, the script is the same and the shares purchased were that of Rs.1,00,000/-. The other aspects are similar and hence appeal being ITA No.507/Ahd/2020 is allowed. 9. In the result, all the three appeals filed by the Revenue are allowed. Order pronounced in the open Court on this 8 th day of February, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member ITA Nos.506, 507 & 508/Ahd/2020 A.Ys.2012-13 for all Page 6 of 6 Ahmedabad, the 8 th day of February, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad