SHRI. RAMESH D DEDHIA, Mumbai V. ITO WARD 16 (3)(3), Mumbai

ITA 5729/MUM/2019

AI Insights

The case involves Ramesh Dungarshi Dedhia, the appellant, who contested the addition of Rs. 22,33,264 to his income for the assessment year 2015-16. This addition was initially made by the Income Tax Officer (ITO) and was later upheld by the Commissioner of Income Tax (Appeals) - CIT(A). The addition was based on the grounds that the appellant had procured these gains through payment of unaccounted cash, as evidenced by the dramatic increase in share prices of M/s Pine Animation, in which the appellant had invested. The Tribunal dismissed the appeal due to the absence of the appellant at multiple hearings and supported the decision of the lower authorities, citing extensive investigations and evidence of price rigging and manipulation by operators in the stock market.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123794 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 29-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 04-09-2019
• Other Referred Cases: Pankaj Agarwal & Sons (HUF) vs. ITA No.1413 /CNNY/2014-15, Sanjay Bimalchand Jain vs. Principal Commissioner of Income-tax-1, Nagpur, PCIT Vs. NRA Iron & Steel (P.) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Capital Gains; Bogus
• Section: 68; 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia B-81, Chinar Rafi Ahmed Didwai Road Opp. Azad Nagar, Wadala (W) Mumbai - 400031 PAN: AABPD9878L v. Income Tax Officer – 16(3)(3) Room No. 447, 4 th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 (Appellant) (Respondent) Assessee Represented by : None Department Represented by : Shri Minal Kamble Date of Hearing : 30.01.2023 Date of Pronouncement : 23.02.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-7, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 18.07.2019 for the A.Y. 2015-16. 2 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia 2. Assessee has raised following grounds in its appeal: - “ON NATURAL JUSTICE: 1.1 In the facts and circumstances of the case and in law the order passed by the Learned Commissioner of Income Tax (Appeals) - 7, Mumbai [the CIT(A)] which in turn affirmed the order passed by the Learned Income Tax Officer - 16 (3)(5), Mumbai (the AO) is bad in law and deserves to be quashed since the Assessment order passed by the AO is in itself void as the same is passed in gross violation of principles of Natural Justice. ON MERITS: 2.1 In the facts and circumstances of the case and in law, the addition of Rs. 22,33,264/- made u/s 68 by the AO and as affirmed by the CIT(A) is bad in law and deserves to be deleted. 2.2 While affirming the said addition the Ld. CIT (A) failed to appreciate that: (i) The addition has been made merely on the basis of surmises and conjectures and based on some extraneous and irrelevant considerations while completely ignoring the relevant documentary evidences and material as furnished by the Appellant; (ii) The addition is made on the basis of some unconfronted statements of some third parties before some other Authority and in fact the said parties are not even known to the Appellant; (iii) The Appellant could not be asked to prove the negative and in fact admittedly there is no concrete evidence with the AO or even the CIT(A) on the basis of which the said addition has been made; and; (iv) Even otherwise the addition made on the basis only of some third party statements is not sustainable since the Appellant was neither provided the material gathered at the back of the Appellant and used against him and was also not granted an opportunity to cross examine the parties whose statements were used against the Appellant in spite of specific requests in this regard. 3 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia 2.3 In any case, the addition made by the AO and as affirmed by the CIT(A) deserves to be deleted since the same is made without classifying the same under any head as mandatorily required u/s 14 and as such the same is made without any application of mind to the facts and evidences on record in the present case. 3. The Appellant craves leave to add, amend, alter, delete or modify all or any the above grounds at the time of hearing.” 3. We observed from the record that the hearing was posted since 29.01.2021 and posted 18 times. Inspite of issue of notice none appeared on behalf of assessee nor any adjournment was sought for the last four adjournments. We deem it fit and proper to proceed to dispose off the appeal as it is pending from 2021. Since the assessee has not appeared in spite of the several notices, we dispose off this appeal on merits after hearing the Ld.DR. 4. Ld. DR briefly explained the facts and supported the orders of the lower authorities. 5. Considered the submissions of the Ld.DR and material placed on record. On perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and sustained the addition made by the Assessing Officer. While holding so, the Ld.CIT(A) observed as under: 4 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia “7. Having considered the aforesaid assessment order of the AO and the written submissions and oral arguments of the appellant, I find that the appellant has dealt in shares of M/s Pine Animation during the year, the details of which as submitted by the assessee are as under: Scrip Name : M/s Pine Animation Buy Sell Date of Purchase/Sale Quantity Rate amount Quantity Rate amount 08/12/2012 28,000 (Split) 0.30/- (Split price) 8,400/- 21/11/2014 10,000 81.87/- 8,18,680/- 26/11/2014 10,000 80.72/- 8,07,192/- 11/12/2014 8,000 75.92/- 6,07,392/- Total 28,000 8,400/- 28,000 22,33,264/ - It is thus seen that Rs. 8,400/- invested by the assessee in the said scrip has become Rs. 22,33,264/- which is 266 times in around 2 years time and the Gain of Rs 22,24,864/- has been claimed exempt u/s 10(38) of the Act which the AO has not allowed mainly on the ground that the assessee has procured the gain by payment of unaccounted cash of Rs 22,33,264/- being the sale consideration shown in the transactions. Thus, the amount of Rs 22,33,264/- was added to the total income of the assessee. 7.1 The price of this scrip jumped 266 times in around 2 years time. As the gains in the M/s Pine Animation were huge in a short period of time, a detailed investigation was undertaken by the AO and various tools available were examined including ITD data, BSE data, money control website, taxmann, court rulings, internet as well as investigation wing report and findings of the SEBI. The Investgation wing of Kolkata, Mumbai and Ahmedabad office of the Income Tax Department carried out investigations in respect of the various scrips including in the case of M/s Pine Animation and modus operandi involved in artificially booking of Capital Gains and Loss was unearthed. The beneficiaries of artificial long term capital gain deposit cash with the operator, show purchase of scrip at a very low price and get a cheque of much bigger amount shown as sale of same scrip at a very high rate. The share prices are artificially rigged by the operators. All this is done by the operators for a commission. In this period respective purchases and sales were shown for those who wished to purchase LTCG and thereafter prices were brought down. In between the share was also split. The AO has also observed that the net worth of the company was negligible and share prices 5 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia of the company have been artificially rigged and there is no business activity to justify surge in the share prices by almost 266 times in around two years time. 7.2 After the receipt of reports from the investigation wing alleging providing of entry of capital gains in the scrip of M/s Pine Animation, the AO has carried out independent inquiries and analysis. 7.3 The assessee has not been able to prove the unusual rise and fall of share prices and the Assessee has also no knowledge about the fundamentals of the company viz. M/s Pine Animation, the shares of which he has purchased and sold. 7.4 The case laws relied upon by the assessee are factually distinguishable and there are a number of case laws involving identical facts, where the Courts/ Tribunals have upheld the orders of the AO making such additions. In these case are also detailed investgation was carried out by the AO/ Investgation wing unearthing the modus operandi of laundering of unaccounted money through share market route and the assesses could not explain the unusual rise in share prices of unknown companies having no commensurate business. Some of these case laws are: 1) Pankaj Agarwal & Sons (HUF), ITA No.1413 /CNNY/2014-15., Dated 06.12.2018: In this case the addition made by the AO was confirmed by the Hon'ble Chennai ITAT by holding as under: "4. While doing so, the Ld.AO analyzing the issue in detail arrived at the conclusion that the following findings of the wing corroborates with the findings of the SEBI: (0) The company in which the assessees had purchased the equity shares had no creditability and no prudent investor would make such investment. (ii) As per the finding of the investigation report of the investigation wing, the members who participated in the trading of the scrip during mid-2013 to mid-2014 were part of the syndicate of brokers and brokering entities indulging in price rigging. (iii) The ultimate beneficiary of all the price manipulation is the beneficiaries like the assessees who sold the shares when the share price was sufficiently brought to a high level and could take the benefit of Section 10(38) of the Act. 6 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia (iv) For facilitating such bogus entries, the brokers were paid commission in cash generally around 6% of the value of the transaction or Rs.0.50 to Rs.1/- for every Rs.100/- transacted. (v) But for the price rigging and manipulative actions of the brokers the assessee would not have earned such Long Term Capital Gain. (vi) The motive of the price manipulation is only to bring out their black money as legitimately earned Long Term Capital Gain for which exemption U/s. 10(38) of the Act is available." ii) Sanjay Bimalchand Jainv.Principal Commissioner of Income-tax-1, Nagpur, [2018] 89 taxmann.com 196 (Bombay), dated: APRIL 10, 2017: In this case, the jurisdictional High Court of Bombay has held that where assessee had purchased shares of penny stocks companies at lesser amount and within a year sold such shares at much higher amount and assessee had not tendered cogent evidence to explain as to how shares in an unknown company had jumped to such higher amount in no time and also failed to provide details of person who purchased said shares, said transactions were attempt to hedge undisclosed income as long term capital gain. ....... 7.5 It has also been the assessee's contention that the transactions of sale of shares by the assessee were duly backed by all evidences including Contract Notes, Demat Statement, Bank Account reflecting the transactions, the Stock Brokers have confirmed the transactions, the Stock Exchange has confirmed the transactions. The assessee might have done all the necessary paperwork as is done in most such transactions of penny stock companies but that itself does not mean that the transaction of the assessee are genuine and explainable. In this regard, the Apex court in a very recent judgment in the case of PCIT Vs. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC), dated: MARCH 5, 2019 while reversing the order of lower Authorities holding that where there was failure of assessee to establish credit worthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital 7 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia / premium received by assessee company. Merely because assessee company had filed all primary evidence, it could not be said that onus on assessee to establish credit worthiness of investor companies stood discharged. In the present case also, the appellant has not been able to prove the reasons for surge of 622 times in the share price of M/s Pine Animation and there is all the evidence against the assessee collected by the Investigation Wing/AO. The ratio decidendi of the Apex Court in NRA Iron & Steel, supra is squarely applicable in the present case. 7.6 In view of the above discussion, factual matrix and the judicial precedents, I find that the AO was justified in making the additions of Rs 22,33,264/- being the sale consideration shown in the transactions. Thus, the addition of Rs 22,33,264/- added to the total income of the assessee by the AO is confirmed.” 6. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any reason to interfere with the finding of the Ld.CIT(A) especially when there is no representation from the assessee side. Accordingly, appeal filed by the assessee is dismissed. 7. In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court on 23 rd February, 2023 Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated /02/2023 Giridhar, Sr.PS 8 ITA NO. 5729/MUM/2019 (A.Y: 2015-16) Ramesh Dungarshi Dedhia Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum