KANJI DEVA PATEL, NAVI MUMBAI V. ITO WD 23(2)-4,

ITA 5458/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9314 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-06-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 13-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: MALAY H SHAH
• Keywords: Reopening of assessment; Principle of natural justice; Opportunity of cross examination; Difference of opinion; Change of opinion
• Section: 142(1); 133A; 147; 131; 148

Judgement Text

1 ITA NO.5458/MUM/2-13 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5458/MUM/2013 (ASSESSMENT YEAR 2003-04) KANJI DEVA PATEL B-1003, NEEL SIDDH TOWER VASHI, NAVI MUMBAI-400 705 PAN : AABPP5092N VS ITO, WARD 23(2)-4, MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI MALAY H SHAH RESPONDENT BY SHRI RAM TIWARI DATE OF HEARING 03-08-2017 DATE OF PRONOUNCEMENT -09-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT(A)-19, MUMBAI DATED 25-10-2012 AND IT PERTAINS TO AY 2003-04. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN S USTAINING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.9, 54,665/- BEING AMOUNT RECEIVED OIL OF EQUITY SHARES AS A INC OME FROM UNDISCLOSED SOURCE INSTEAD OF LONG TERM CAPITA L GAIN ON SALE OF LISTED EQUITY SHARES OF RS.9 5 1 5,640/-(SALE PRICE RS.9,54,665 LESS COST OF PURCHASE RS.39,025) 2 ITA NO.5458/MUM/2-13 2) OIL FACTS AND CIRCUMSTANCES OF THE CASE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN S USTAINING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.48 ,000/- BEING AMOUNT OF INTEREST PAID FOR THE PURPOSE OF BUSINESS . 3) OIL FACTS AND CIRCUMSTANCES OF THE CASE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ENYING THE REQUEST/RIGHT OF THE ASSESSEE TO PROVIDE HIM WITH A N OPPORTUNITY OF CROSS EXAMINATION/VERIFICATION OF THE STATEMENT REC ORDED BY THE AO UNDER SECTION 131 OF INCOME TAX ACT 1961 OF SHRI SH RVAN G. GOYAL PROPRIETOR OF M/S SHYAM INVESTMENTS A SUB BROKER TH ROUGH WHOM THE BROKER OF THE ASSESSEE HAD SOLD THE SHARES BY OVERL OOKING THE PRINCIPLE OF NATURAL JUSTICE AND TAX JURISPRUDENCE. 4) OIL FACTS AND CIRCUMSTANCES OF THE CASE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ENYING THE GROUND OF THE APPEAL OF THE ASSESSEE REOPENING OF T HE CASE UNDER SECTION 148 OF THE INCOME TAX ACT MERE ON REASON TO SUSPECT (OR MERE CHANGE OF OPINION ) INSTEAD OF REASON TO B ELIEVE. 2. FROM THE GROUNDS OF APPEAL, IT TRANSPIRES TO US THA T THE ASSESSEE HAS RAISED THREE ISSUES, VIZ. (I) CHALLENGED THE VALIDI TY OF RE-ASSESSMENT; (II) CHALLENGED THE ADDITION TOWARDS LONG TERM CAPITAL G AIN DERIVED FROM SALE OF LISTED EQUITY SHARES UNDER THE HEAD INCOME FROM OT HER SOURCES; AND (III) ADDITION TOWARDS DISALLOWANCE OF INTEREST PAID ON B ORROWED CAPITAL U/S 24(B). 3. DURING THE COURSE OF HEARING, THE LD.AR FOR THE ASS ESSEE SUBMITTED THAT HE DID NOT WANT TO PRESS GROUND REGARDING CHALLENGI NG OF VALIDITY OF REOPENING OF ASSESSMENT AND HENCE, GROUND 4 IS DISMISSED, AS NOT PRESSED. 4. THUS, THE EFFECTIVE GROUNDS REMAIN FOR OUR CONSIDER ATION ARE ADDITIONS TOWARDS LONG TERM CAPITAL GAIN DERIVED FROM SALE OF LISTED EQUITY SHARES UNDER 3 ITA NO.5458/MUM/2-13 THE HEAD INCOME FROM OTHER SOURCES; AND ADDITION TOWARDS DISALLOWANCE OF INTEREST PAID ON BORROWED CAPITAL U/S 24(B). 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL FILED HIS RETURN OF INCOME FOR THE AY 2003-04 DECLARING TOTAL INCOME OF RS.11,43,553/-, CONSISTING OF INCOME FROM HOUSE PROPERTY, INCOME FROM CAPITAL GAIN AND INCOME FROM OTHER SOURCES. A SURVEY WAS CONDUCTE D IN ASSESSEES PREMISES U/S 133A OF THE ACT BY THE AO TO VERIFY THE SHARE T RANSACTION. DURING THE COURSE OF SURVEY, IN RESPONSE TO THE QUESTION PUTFO RTH BY THE AO, ASSESSEE REPLIED THAT HE HAD PURCHASED SHARES OF M/S BRIJLAX MI LEASING AND FINANCE LTD THROUGH MR.THAKKAR. CONSEQUENT TO SURVEY, THE CASE HAS BEEN REOPENED U/S 147 BY ISSUING NOTICE U/S 148 OF THE ACT. SUBSEQUE NTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S 14 3(2) AND 142(1) OF THE ACT WERE ISSUED. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN FROM SALE OF SHARES OF RS.19,15,640 . IN SUPPORT OF PURCHASE AND SALE THE ASSESSEE HAS FURNISHED CONTRACT NOTE ISSUED BY M/S. THAKKAR STOCK BROKER P VT LTD AND M/S SHYAM INVESTMENT. ON PERUSAL OF THE DETAILS IT WAS NOTIC ED THAT THE ASSESSEE HAS PURCHASED 10,000 SHARES OF M/S BRIJLAXMI LEASING AN D FINANCE LTD FOR A CONSIDERATION OF RS.39,025. THE SAID SHARES HAVE B EEN SOLD IN THE FINANCIAL YEAR 2002 ON THREE OCCASIONS FOR A CONSIDERATION OF RS.9 ,54,665. CONSIDERING THE 4 ITA NO.5458/MUM/2-13 PURCHASE AND SALE PRICES OF SHARES AND SUDDEN INCRE ASE IN PROFIT MARGIN OF 2500% OF THE INVESTMENT WHICH IS WITHIN A SPAN OF 1 5 MONTHS, THE AO HAS CONDUCTED NECESSARY ENQUIRIES WITH REGARD TO THE PR ICE MOVEMENT OF THE SCRIP IN THE MARKET AND ALSO RECORDED STATEMENTS FROM THE BROKERS FROM WHOM THE SHARES WERE PURCHASED AND SOLD. 6. THE AO, AFTER CONDUCTING NECESSARY ENQUIRIES, CAME TO THE CONCLUSION THAT LONG TERM CAPITAL GAIN DECLARED BY THE ASSESS EE FROM SALE OF SHARES OF M/S BRIJLAXMI LEASING AND FINANCE LTD IS A SHAM TRANSAC TION ENTERED IN COLLUSION WITH CERTAIN BROKERS TO CONVERT HIS UNACCOUNTED MON EY UNDER THE GUISE OF LONG TERM CAPITAL GAIN. THE AO CAME TO THE CONCLUSION B ASED ON THE DEPOSITION GIVEN BY SHRI SHYAM GOYAL, PROP OF SHREE SHYAM INVE STMENT WHEREIN HE STATED THAT THE CONTRACT NOTE ISSUED BY HIM IS NOT GENUINE AND NOT REPORTED TO STOCK EXCHANGE. HE ISSUED CONTRACT NOTE AS PER THE REQUE ST OF MR. KANJI DEVA PATEL, WHO CAME WITH A CHEQUE FOR WHICH HE CHARGED A COMMI SSION OF RS.400 TO FACILITATE THE TRANSACTION. THE AO FURTHER OBSERVE D THAT THE PRICE MOVEMENT OF THE SCRIP IN THE BOMBAY STOCK EXCHANGE AT THE RELEV ANT POINT OF TIME WAS BETWEEN RS.9.5 TO RS.10. BASED ON THE ENQUIRIES CO NDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND CONSIDERING THE FACT THAT THE ASSESSEE HAS SOLD THE SHARES FOR A CONSIDERATION OF RS.94.15 PER SHAR E, THE AO OPINED THAT THE SO- CALLED TRANSACTION OF SALE OF SHARES OF M/S BRIJLAX MI LEASING AND FINANCE LTD IS A 5 ITA NO.5458/MUM/2-13 SHAM TRANSACTION AND HENCE, DISALLOWED THE CLAIM OF LONG TERM CAPITAL GAIN AND BROUGHT TO TAX SAME UNDER THE HEAD INCOME FROM OTH ER SOURCES. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST OF RS.84,000 AGAINST INCOME FROM HOUSE PROPERTY. THEREFORE, THE AO REQUESTED THE ASSESSE E TO SUBMIT CO-RELATION OF THE LOAN TAKEN ON WHICH INTEREST IS PAID WITH THE A MOUNT PAID FOR PURCHASE OF PROPERTY ON WHICH RENTAL INCOME IS RECEIVED. IN RE PLY, ASSESSEE STATED THAT HE HAS TAKEN RS.3 LAKHS LOAN FROM VEENA SHAH AND VELJ I SHAH TO FINANCE PURCHASE OF THE PROPERTY FOR WHICH HE PAID INTEREST. THE AO , AFTER CONSIDERING THE RELEVANT SUBMISSIONS OF THE ASSESSEE ALLOWED INTERE ST PAYMENT OF RS.24,000 TO VEENA SHAH AND RS.12,000 TO VELJI SHAH AND DISALLOW ED BALANCE AMOUNT OF RS.48,000 AS THE ASSESSEE HAS FAILED TO FURNISH REL EVANT DETAILS OF LOANS BORROWED AND PAYMENT OF INTEREST. 8. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A) AND CHALLENGED THE REOPENING OF ASSESSMENT. THE ASSESSEE ALSO FILED ELABORATE WRITTEN SUBMISSION IN RESPECT OF ADDITION S MADE BY THE AO TOWARDS DISALLOWANCE OF LONG TERM CAPITAL GAIN FROM SALE OF SHARES AND DISALLOWANCE OF INTEREST ON BORROWED CAPITAL AGAINST INCOME FROM HO USE PROPERTY. CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO RELYING UPON CERTAIN 6 ITA NO.5458/MUM/2-13 JUDICIAL PRECEDENTS DISMISSED APPEAL FILED BY THE A SSESSEE AND UPHELD THE ADDITION MADE BY THE AO. THE CIT(A) FURTHER OBSERV ED THAT THE ASSESSMENT HAS BEEN REOPENED WITH A VALID REASON AND THERE IS NO M ERIT IN THE ARGUMENTS OF THE ASSESSEE THAT THE ASSESSMENT IS INVALID. INSOF AR AS ADDITION MADE BY AO TOWARDS DISALLOWANCE OF LONG TERM CAPITAL GAIN, THE CIT(A) OBSERVED THAT IN THE INSTANT CASE, THE AO HAS NOT ONLY RELIED UPON THE S TATEMENT OF THE DP / STOCK BROKER BUT ALSO MADE INDEPENDENT ENQUIRIES WITH BSE TO FIND OUT THE COST OF SHARE. AT NO STAG THE ASSESSEE HAS STATED THAT THE PRICE DETERMINED BY THE AO WAS ACTUALLY INCORRECT. THE FACTS RECORDED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS CLEARLY ESTABLISH THAT THE S O-CALLED SALE OF SHARES OF M/S BRIJLAXMI LEASING AND FINANCE LTD IS A SHAM TRA NSACTION TO CONVERT THE UNDISCLOSED INCOME OF THE ASSESSEE UNDER THE GUISE OF LONG TERM CAPITAL GAIN TO DERIVE TAX BENEFIT. WITH THESE OBSERVATIONS, THE L D.CIT(A) UPHELD THE ADDITIONS MADE BY THE AO. AS REGARDS DISALLOWANCE OF INTERES T, THE CIT(A) STATED THAT THE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE TO SUBSTANTIA TE ITS CLAIM OF INTEREST PAID ON BORROWED CAPITAL AND HENCE, UPHELD ADDITION MADE BY THE AO. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS I N APPEAL BEFORE US. 9. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF LONG TERM CAPITAL GAIN FROM SALE OF LISTED EQUITY SHARES AND BROUGHT TO TAX UNDER THE HAD INCOME FROM OTHER SOURCES. THE AO DISALLOWED LONG TERM CAPITAL GAIN 7 ITA NO.5458/MUM/2-13 DECLARED BY THE ASSESSEE AND TREATED THE SAME AS I NCOME FROM OTHER SOURCES ON THE GROUND THAT THE ASSESSEE HAS USED SHAM TRANS ACTION TO CONVERT HIS UNDISCLOSED INCOME UNDER THE GUISE OF LONG TERM CAP ITAL GAIN TO DERIVE TAX BENEFIT. ACCORDING TO THE AO, THE BROKERS FROM WHO M THE SHARES WERE PURCHASED AND THE BROKER THROUGH WHOM SHARES WERE S OLD ARE DENIED OF HAVING DONE ANY SHARE TRANSACTION WITH THE ASSESSEE. THE AO FURTHER WAS OF THE OPINION THAT THE ASSESSEE HAS OBTAINED CONTRACT NOT E FROM THE BROKER BY PAYING HIS OWN MONEY WHICH IS EVIDENT FROM THE FACT THAT T HE BROKER, WHO ISSUED THE CONTRACT NOTE HAS DISOWNED THE CONTRACT NOTE AND AC CEPTED THAT HE HAD ISSUED THE CONTRACT NOTE ON A COMMISSION OF RS.400 TO FACI LITATE THE TRANSACTION. THE ASSESSEE CLAIMS THAT HIS SHARE TRANSACTION OF M/S B RIJLAXMI LEASING AND FINANCE LTD IS A GENUINE TRANSACTION DONE THROUGH DEMAT ACC OUNT. THE ASSESSEE FURTHER CONTENDED THAT HE HAD PURCHASED IMPUGNED SHARES IN THE FINANCIAL YEAR 2001 @RS.3.90 PER SHARE AND THE SAME HAS BEEN SOLD IN TH E FINANCIAL YEAR 2002 @RS.94.95 PER SHARE. THE ASSESSEE HAS FURNISHED HI S DEMAT ACCOUNT AND ALSO STATEMENT OF BSE PRICE INDEX OF SHARES GENERATED FR OM THE WEBSITE OF BSE WHICH INDICATE THAT DURING THE PERIOD JUNE, 2002 TO DECEMBER, 2002, THE PRICE MOVEMENT OF THE SHARES WAS AROUND RS.91.5 TO 109.25 PER SHARE. THE ASSESSEE FURTHER CONTENDED THAT THIS FACT HAS BEEN RECORDED BY THE ITAT, IN THE CASE OF M/S PARVESH CONSTRUCTION P LTD ITA NO.2690/MUM/2009 FOR THE ASSESSMENT 8 ITA NO.5458/MUM/2-13 YEAR 2003-04 ORDER DATED 25 TH MAY, 2011 WHEREIN THE SHARES OF M/S BRIJLAXMI LEASING AND FINANCE LTD HAS BEEN TRADED BETWEEN RS. 82.90 TO RS.110.50 PER SHARE. THEREFORE, THE AO WAS INCORRECT IN HOLDING THAT THE TRANSACTION OF SHARE OF M/S BRIJLAXMI LEASING AND FINANCE LTD IS A SHAM TRANSACTION. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE AO DISALLOWED CLAIM OF LONG TERM CAPIT AL GAIN ON SALE OF SHARES OF M/S BRIJLAXMI LEASING AND FINANCE LTD ON THE GROUND THAT THE BROKERS HAVE DENIED THE TRANSACTION OF SALE OF SHARES AND ALSO T HE PRICE OF STOCK IN THE BSE AT THE RELEVANT POINT OF TIME WAS BETWEEN RS.9.5 TO RS .10 PER SHARE. THE AO RELIED UPON THE STATEMENT OF BROKER, WHO FACILITATE D TRANSACTION TO COME TO THE CONCLUSION THAT IT IS A SHAM TRANSACTION USED FOR C ONVERSION OF UNDISCLOSED INCOME UNDER THE GUISE OF LONG TERM CAPITAL GAIN TO DERIVE TAX BENEFIT. THE ASSESSEE CLAIMS THAT HE HAD DONE PURCHASE AND SALE OF SHARES OF M/S BRIJLAXMI LEASING AND FINANCE LTD THROUGH DEMAT ACCOUNT AND T HE PRICE AT WHICH THE SHARES HAVE BEEN SOLD IS IN CONFORMITY WITH THE PRI CE MOVEMENT OF SHARE PRICE IN THE BSE AT THE RELEVANT POINT OF TIME. THE ASSE SSEE HAS FILED COPY OF DEMAT ACCOUNT AND ALSO STATEMENT GENERATED FROM THE WEBSI TE OF BSE TO PROVE THE PRICE MOVEMENT OF STOCK AT THE RELEVANT POINT OF TI ME. WE FIND THAT THE ASSESSEE HAS DEMATED SHARES OF M/S BRIJLAXMI LEASIN G AND FINANCE LTD AND THE PURCHASE AND SALE OF SHARES OF THE SAID GROUP IS RE CORDED IN THE DEMAT ACCOUNT 9 ITA NO.5458/MUM/2-13 OF THE ASSESSEE. WE FURTHER NOTICE THAT THE PRICE MOVEMENT OF THE SCRIP IN THE BSE DURING THE RELEVANT POINT OF TIME IS IN CONFOR MITY WITH THE PRICE AT WHICH THE ASSESSEE HAS SOLD HIS SHARES. WE FURTHER OBSER VE THAT THE ITAT, MUMBAI BENCH C IN THE CASE OF M/S PARVESH LEASING & FINA NCE LTD (SUPRA) HAS DEALT WITH A SIMILAR ISSUE ON SALE OF SHARES OF M/S BRIJL AXMI LEASING AND FINANCE LTD WHEREIN THE TRIBUNAL RECORDED A CLEAR FINDING THAT THE PRICE MOVEMENT OF THE SHARE IN THE BSE DURING THE PERIOD APRIL, 2002 TO M ARCH, 2003 IS BETWEEN RS.82.90 TO RS.110.50 PER SHARE. ALL THESE EVIDENC ES LEAD US TO A CONCLUSION THAT THE SHARE TRANSFER OF M/S PARVESH CONSTRUCTION P LTD IS NOT A SHAM TRANSACTION, BUT A NORMAL TRANSFER OF SHARES OF THR OUGH RECOGNIZED STOCK EXCHANGE AND THROUGH DEMAT ACCOUNT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS INCORRECT IN HOLDING THAT THE ASSESSEE HAS USED SHAM TRANSACTION TO CONVERT HIS UNDISCLOSED INCOME UNDER THE GUISE OF LONG TERM CAPITAL GAIN. HOWEVER, THE ISSUE NEEDS TO BE RE-EX AMINED BY THE AO TO ASCERTAIN THE CORRECT FACT WITH REGARD TO THE STATE MENT OF THE ASSESSEE TO JUSTIFY THE PRICE MOVEMENT OF SHARES AS IT IS CLEAR LY IN CONFLICT WITH THE FINDING OF FACT RECORDED BY THE AO DURING THE COURSE OF ASS ESSMENT PROCEEDINGS. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO EXAMINE THE ISSUE IN THE LIGHT OF THE CLAIM OF THE ASSESSEE . 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF 10 ITA NO.5458/MUM/2-13 INTEREST PAID ON BORROWED CAPITAL AGAINST INCOME FR OM HOUSE PROPERTY. THE ASSESSEE HAS CLAIMED INTEREST PAYMENT OF RS.84,000 AGAINST THE INCOME FROM HOUSE PROPERTY. THE ASSESSEE CLAIMS THAT HE HAD BO RROWED LOAN ON WHICH INTEREST HAS BEEN PAID. THE AO HAS ALLOWED INTERES T PAYMENT OF RS.36,000 AGAINST LOAN BORROWED FROM TWO INDIVIDUALS AMOUNTIN G TO RS.3 LAKHS AND DISALLOWED BALANCE AMOUNT OF RS.48,000 ON THE GROUN D THAT THE ASSESSEE HAS FAILED TO FILE NECESSARY EVIDENCE. THE FACT REMAIN S UNCHANGED. THE ASSESSEE HAS FAILED TO FILE ANY EVIDENCE TO CONTROVERT THE F INDINGS OF FACT RECORDED BY THE AO. THEREFORE, WE ARE OF THE VIEW THAT THE AO WAS RIGHT IN DISALLOWING INTEREST AND HENCE, WE UPHOLD THE ADDITION MADE BY THE AO AN D DISMISSED GROUND RAISED BY THE ASSESSEE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH SEPTEMBER, 2017. SD/- SD/- (D.T. GARASIA ) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 20 TH SEPTEMBER, 2017 PK/- 11 ITA NO.5458/MUM/2-13 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI