Sahil Shyam Duseja, CHENNAI V. ITO Non Corporate Ward 3(3), CHENNAI

ITA 545/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7472 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 15-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Search and seizure; Principle of natural justice; Wrong claim

Judgement Text

, (SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL, D (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO. 545/CHNY/2018 / ASSESSMENT YEAR : 2014-2015. SAHIL SHYAM DUSEJA, NO.7, 2 ND STREET, KASTURI RANGA ROAD, GOPALPURAM, CHENNAI 600 086 . [PAN AASPS 7408Q] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 3(3) CHENNA I. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. B. RAMAKRISHNAN, C.A. /RESPONDENT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 03-07-2018 !' /DATE OF PRONOUNCEMENT : 04-07-2018 % / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS D IRECTED AGAINST AN ORDER DATED 30.11.2017 OF LD. COMMISSION ER OF INCOME TAX (APPEALS)-4, CHENNAI, IT IS AGGRIEVED ON DENIAL O F EXEMPTION OF LONG TERM CAPITAL GAINS OF C36,45,204/-, ARISING ON TRAN SFER OF SHARES, CLAIMED U/S.10(38) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ITA NO.545 /CHNY/2018 :- 2 -: AND TREATING THE CONSIDERATION OF C36,60,000/- AS U NEXPLAINED INCOME U/S.68 OF THE ACT. ASSESSEE IS ALSO AGGRIEVED THAT THERE WAS AN ADDITION OF C1,12,800/- U/S.69C OF THE ACT FOR 3% C OMMISSION PAID BY IT ON THE SHARE TRANSACTIONS. 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSE E HAD SOLD 1,00,000 SHARES OF ONE M/S. KAILASH AUTO FINAN CE LTD AND LONG TERM CAPITAL GAINS OF C36,45,204/- ARISING FROM SUC H SALE WAS CLAIMED AS EXEMPT U/S.10(38) OF THE ACT. AS PER THE LD. AUT HORISED REPRESENTATIVE, CONSIDERATION RECEIVED ON SALE OF T HE SHARES CAME TO C36,60,000/-. CONTENTION OF THE LD. AUTHORISED REPR ESENTATIVE WAS THAT LOWER AUTHORITIES DISBELIEVED THE SALE OF THE SHAR ES, RELYING ON REPORTS OF DIRECTORATE OF INCOME TAX (INVESTIGATION) KOLKAT A AND DELHI, WHICH MENTIONED THAT M/S. KAILASH AUTO FINANCE LTD WAS A PENNY STOCK COMPANY. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD INITIALLY PURCHASED 1,00,000 SHARES OF M/S. CAREFUL PROJECTS ADVISORY LTD. WHICH WAS LATER MERGED WITH M/S. KAILASH AUT O FINANCE LTD. FURTHER, AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE WAS ALLOTTED EQUAL NUMBER OF SHARES IN THE LATTER COMPA NY ON SUCH MERGER, WHICH WAS UNDER A SCHEME APPROVED BY THE HIGH COURT . CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT PURCHASE OF THE SHARES OF M/S. CAREFUL PROJECTS ADVISORY LTD. WERE GENUINE T HOUGH IT WAS DONE ITA NO.545 /CHNY/2018 :- 3 -: OFF MARKET. THE SALE OF THE SHARES OF M/S. KAILASH AUTO FINANCE LTD. AS PER THE LD. AUTHORISED REPRESENTATIVE, WAS MADE THR OUGH RECOGNIZED STOCK EXCHANGE AND OUGHT NOT HAVE BEEN DISBELIEVED . CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT STATEME NTS RECORDED FROM VARIOUS PERSONS LIKE SUNIL DOKANIA, HARSHVARDHAN KAYAN AND NARENDRA BALASIA ETC WERE RELIED ON BY THE LOWER A UTHORITIES FOR DISBELIEVING THE TRANSACTIONS AND COMING TO A CON CLUSION THAT PRICES OF M/S. KAILASH AUTO FINANCE LTD WERE JACKED UP ART IFICIALLY AND ASSESSEE HAD MADE CLAIM A BOGUS CLAIM OF LONG TERM CAPITAL GAINS. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THESE STAT EMENTS WERE NEVER PUT TO THE ASSESSEE. RELYING ON THE DECISION OF CO- ORDINATE BENCH IN THE CASES OF VIMALCHAND GULABCHAND VS. ITO, PRAVEEN CHAND VS. IT O, GATRAJ JAIN & SONS (HUF) VS. ITO AND MAHENDRA KUMAR BHANDARI VS. ITO (ITA NOS.2003/17, 1721/2017, 2293/17 AND 2748/2 017 DATED 06.04.2018), LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN SI MILAR CASES WHERE THERE WAS A CLAIM FOR EXEMPTION OF LON G TERM CAPITAL GAINS ON SALE OF EQUITY SHARES OF M/S. KAILASH AUTO FINANCE LTD, THE TRIBUNAL HAD GIVEN DIRECTIONS TO THE LD. ASSESSING OFFICER FOR RECONSIDERING THE ISSUE ADHERING TO THE RULES O F NATURAL JUSTICE. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBM ITTED THAT THERE ITA NO.545 /CHNY/2018 :- 4 -: WERE SUFFICIENT AND MORE REASONS FOR LOWER AUTHOR ITIES TO DISBELIEVE THE TRANSACTIONS CLAIMED BY THE ASSESSEE IN THE EQU ITY SHARES OF M/S. KAILASH AUTO FINANCE LTD. AS PER THE LD. DEPARTMEN TAL REPRESENTATIVE, ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW HOW HE INDENTIFIED THE SHARES OF M/S. CAREFUL PROJECTS ADVISORY LTD. FOR MAKING AN OFF MARKET PURCHASE. 4. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT LONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE AS EXEMPT U/S.10(38) OF THE ACT AROSE ON ACCOUNT OF SALE OF EQUITY SHARES OF M/S. KAILAS H AUTO FINANCE LTD. IT IS ALSO NOT DISPUTED THAT WHAT THE ASSESSEE HAD INITIALLY ACQUIRED THE SHARES OF ONE OF M/S. CAREFUL PROJECTS ADVISORY LTD , WHICH WAS LATER MERGED WITH M/S. KAILASH AUTO FINANCE LTD. IN SIMIL AR CASES OF VIMALCHAND GULABCHAND, PRAVEEN CHAND, GATRAJ JAIN & SONS (HUF) AND MAHENDRA KUMAR BHANDARI (SUPRA) WHERE ALSO ASSESSEES HAD CLAIMED EXEMPTION U/S.10(38) OF THE ACT ON SALE OF SHARES OF M/S. KAILASH AUTO FINANCE LTD, THIS TRIBUNAL HAD HELD AS UNDER AT PARA 13 TO 16 OF ITS ORDER DATED 6.04.2018. 13. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE ORDERS OF THE AUTHORITIES BELOW. THE LD. ASSESS ING OFFICER AS WELL AS LD.CIT(A) HAD RELIED ON SEBI ORD ER DATED ITA NO.545 /CHNY/2018 :- 5 -: 29.03.2016, IN THE CASE OF M/S.KAILASH AUTO FINANCE LTD.. IT IS TRUE THAT IN THE ABOVE ORDER, THERE IS A DETA ILED ANALYSIS OF MODUS OPERANDI ADOPTED BY ABOUT ELEVEN NUMBERS OF COMPANIES, INTER ALIA INCLUDING M/S.KAIL ASH AUTO FINANCE LTD. IT ALSO MENTIONS HOW M/S.KAILASH AUTO FINANCE LTD., HAD BUILT UP A HUGE SHARE PREMIUM WIT HIN A SHORT TIME OF ITS INCORPORATION. SEBI HAD ALSO ANA LYSED THE FINANCIALS OF M/S.CPAN AND M/S.PML, WHICH WERE MERG ED WITH M/S.KAILASH AUTO FINANCE LTD.,AND FOUND THAT T HERE WAS DISPROPORTIONATE ISSUE OF BONUS SHARES BY THESE TWO COMPANIES. APART FROM THE SEBI REPORT, LOWER AUTHOR ITIES HAD ALSO RELIED ON A STATEMENT OBTAINED FROM MR.SUN IL DOKANIA ON 12.06.2015 AND THE REPORT OF INVESTIGAT ION WING OF THE DEPARTMENT. WHAT I CAN DISCERN FROM THE ORDERS OF THE LOWER AUTHORITIES IS THAT THE STATEME NT GIVEN BY MR.SUNIL DOKANIA, NOR THE REPORT OF THE INVESTIG ATION WING RELIED ON BY THE ASSESSING OFFICER, WAS MADE AVAILABLE TO THE ASSESSEE, DURING THE COURSE OF ASS ESSMENT PROCEEDINGS. SINCE THESE WENT AGAINST THE ASSESSEE, RULES OF NATURAL JUSTICE REQUIRE THAT ASSESSEE IS GIVEN A N OPPORTUNITY TO EXPLAIN WHAT WAS MENTIONED IN SUCH STATEMENT AND IF NECESSARY, AN OPPORTUNITY TO EXAMI NE MR.SUNIL DOKANIA. I ALSO FIND THAT THE AO HAD NOT ENQUIRED HOW THE ASSESSEE HAD BECOME AWARE OF THE AVAILABILI TY OF THE EQUITY SHARES OF M/S.PANCHSHUL MARKETING LTD., WHEN THE SAID COMPANY WAS NOT LISTED AND ENTITLED. THE F INDING OF THE LD. ASSESSING OFFICER THAT THE FINANCIALS O F M/S.KAILASH AUTO FINANCE LTD., WERE NOT STRONG ENOU GH FOR JUSTIFYING THE HIGH VALUE OF ITS SHARE IS ALSO NOT SUPPORTED BY SUFFICIENT EMPIRICAL DATA. 14. NOW, COMING TO THE ARGUMENT OF THE LD.A.R THAT ASSESSMENT HAVING BEEN DONE PURSUANT TO A SEARCH, OUGHT HAVE BEEN U/S.153A TO 153D OF THE ACT AND NOT U/S.143(3), I AM AFRAID I CANNOT TOE THIS LINE OF R EASONING. RELEVANT PARA IN THE ASSESSMENT ORDER RELIED BY THE LD.A.R, FOR BUTTRESSING THIS ARGUMENT REPRODUCED AT PARA EL EVEN ABOVE, HARDLY SUGGEST THAT THE ASSESSMENT DONE ON T HE ASSESSEE WAS PURSUANT TO A SEARCH. JUST BECAUSE AN INVESTIGATION WAS DONE BY THE INVESTIGATION DEPARTM ENT OF THE DEPARTMENT, BASED ON SOME LEADS THEY MIGHT HAVE HAD, REPORTS OF WHICH WERE USED AGAINST THE ASSESSEE, WO ULD NOT IPSO FACTO MEAN THAT THE ASSESSMENT WAS PURSUANT T O ANY ITA NO.545 /CHNY/2018 :- 6 -: SEARCH. THERE IS NOTHING WHATSOEVER ON RECORD TO S UGGEST THAT THE ASSESSMENT WAS BASED ON MATERIALS UNEARTHED DU RING A SEARCH. 15. HOWEVER, AS ALREADY MENTIONED BY ME, RULES OF JUSTICE DO REQUIRE THAT THE REPORTS OF INVESTIGATION WING, REL IED ON BYTHE LD. ASSESSING OFFICER, AS WELL AS THE STATEMENT REC ORDED FROM MR.SUNIL DOKANIA ARE PUT TO THE ASSESSEE AND ITS EXPLANATION SOUGHT, BEFORE DECIDING WHETHER THESE ARE RELEVANT IN THE ASSESSMENT OF THE ASSESSEE. I ALSO FIND THE SEBI T HROUGH ITS ORDER DATED 21.09.2017(SUPRA) DID VACATE ITS INTERI M EXPARTE ORDER DATED 29 TH MARCH, 2016 RESTRAINING 244 ENTITIES, INTER ALIA INCLUDING M/S.KAILASH AUTO FINANCE LTD., FROM BUYING, SELLING OR DEALING IN SECURITIES. 16. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I A M OF THE OPINION THAT THE QUESTION WHETHER THE TRANSACTIONS CLAIMED BY THE ASSESSEE, AS GIVING RISE TO THE LONG TERM CA PITAL GAINS EXEMPT FROM TAX U/S.10(38) OF THE ACT, WERE R EAL OR SHAM, REQUIRES A RE-VISIT BY THE LD. ASSESSING OFFI CER. I SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH. THE FACT SITUATION BEING SAME, I AM OF THE OPINION THAT THE TRANSACTIONS CLAIMED BY THE ASSESSEE WHETHER REAL O R SHAM, REQUIRES A REVISIT BY THE LD. ASSESSING OFFICER. SIMILAR DIREC TIONS AS GIVEN IN THE CASES OF VIMALCHAND GULABCHAND, PRAVEEN CHAND, GATRAJ JAIN & SONS (HUF) AND MAHENDRA KUMAR BHANDARI (SUPRA) ARE GIVEN HEREALSO. I THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORI TIES AND REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH DIRECTIONS IN THE CASE OF VIMALCHAND ITA NO.545 /CHNY/2018 :- 7 -: GULABCHAND, PRAVEEN CHAND, GATRAJ JAIN & SONS (HUF ) AND MAHENDRA KUMAR BHANDARI (SUPRA). 5. IN THE RESULT, APPEAL OF THE ASSESSEE PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 4TH DAY OF JULY, 2018, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:4TH JULY, 2018. KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /1 / GF