MR. RAMESH KUMAR PRAVEEN KUMAR JAIN, CHENNAI V. ITO NON CORPORATE WARD 5 (4), CHENNAI

ITA 701/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4988 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 26-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN
• Assessee Lawyers: D ANAND
• Keywords: Share purchase agreement; Principle of natural justice
• Section: 6; 12

Judgement Text

, (SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL, C (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER] ./I.T.A. NO.701 /CHNY/2018 / ASSESSMENT YEAR : 2014-2015. MR.RAMESH KUMAR PRAVEEN- KUMAR JAIN, NO.24, PERUMAL MUDALI STREET, SOWCARPET, CHENNAI-600 079. [PAN: AQVPP 7890 G] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 5(4) CHENNAI. ( ' / APPELLANT) ( #$' /RESPONDENT) / APPELLANT BY : MR. D. ANAND, ADV. /RESPONDENT BY : SHRI. B. SAGADEVAN, JCIT. /DATE OF HEARING : 30-07-2018 /DATE OF PRONOUNCEMENT : 01-08-2018 / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS DI RECTED AGAINST AN ORDER DATED 07.02.2018 OF COMMISSION ER OF INCOME-TAX (APPEALS)-5, CHENNAI, IT HAS TAKEN ALTOGETHER SEVEN GROUNDS OF WHICH GROUND 1 IS GENERAL, NEEDING NO SPECIFIC ADJUDICAT ION. ITA NO.701 /MDS/2018 :- 2 -: 2. GRIEVANCE RAISED BY THE ASSESSEE THROUGH ITS GROUND S 2 TO 6 IS ON A DISALLOWANCE OF ITS CLAIM OF EXEMPTION U/ S.10(38) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON LONG TERM CAPITAL GAINS ARISING OUT OF SALE OF 4200 EQUITY SHARES OF ONE M /S.TURBOTECH ENGINEERING LTD., AND TREATING THE CONSIDERATION OF 19,72,500/- RECEIVED ON SUCH SALE UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE HAD ACQUIRED 4200 EQUITY SHARES OF ONE M/S.TURBOTECH EN GINEERING LTD., THROUGH OFF MARKET PURCHASE ON 04.04.2012. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE SOLD THESE SHAR ES ON 16.05.2013, AFTER DEMATTING THROUGH A RECOGNIZED STOCK EXCHANGE . HOWEVER, AS PER THE LD. AUTHORISED REPRESENTATIVE, LOWER AUTHO RITIES DISBELIEVED SALE OF SHARES OF M/S.TURBOTECH ENGINEERING LTD., R ELYING ON A REPORT OF DIRECTORATE OF INCOME TAX (INVESTIGATION) KOLKATA AND DELHI WHICH APPARENTLY MENTIONED THAT M/S.TURBOTECH ENGINEERING LTD., WAS A PENNY STOCK COMPANY. CONTENTION OF THE LD. AUTHORI SED REPRESENTATIVE WAS THAT PURCHASE OF THE SHARES OF M/S.TURBOTECH EN GINEERING LTD., WAS GENUINE THOUGH IT WAS DONE OFF MARKET. AS PER THE LD. AUTHORISED REPRESENTATIVE, SALE OF THESE SHARES WAS MADE THROU GH RECOGNIZED STOCK EXCHANGE AND OUGHT NOT HAVE BEEN DISBELIEVED. ALL RECEIPTS, AS PR THE LD. AUTHORISED REPRESENTATIVE WERE THROUGH B ANKING CHANNELS. ITA NO.701 /MDS/2018 :- 3 -: 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 2748/2017 DATED 06.04.2018), LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN SIM ILAR CASES, THE TRIBUNAL HAD DIRECTED THE LD. ASSESSING OFFICER TO RECONSIDER THE ISSUE ADHERING TO THE RULES OF NATURAL JUSTICE. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMI TTED THAT THERE WERE SUFFICIENT AND MORE REASON FOR LOWER AUT HORITIES TO DISBELIEVE THE TRANSACTIONS CLAIMED IN THE SHARES OF M/S.TURBOTECH ENGINEERING LTD. AS PER THE LD. DEPARTMENTAL REPRES ENTATIVE, ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW, HOW HE IDEN TIFIED THE SHARES OF M/S.TURBOTECH ENGINEERING LTD., FOR MAKING AN OF F MARKET PURCHASE. LD. DEPARTMENTAL REPRESENTATIVE ALSO PLACED RELIANC E ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF SHRI HEERACHAND KANUNGA VS. ITO (ITA NOS.2786 & 2787/CHNY/2017, DATED 03.05.2018) . 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTE D 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.TU RBOTECH ITA NO.701 /MDS/2018 :- 4 -: ENGINEERING LTD. IT APPEARS THAT ASSESSEE COULD NOT PRODUCE ANY EVIDENCE AS TO HOW IT IDENTIFIED EQUITY SHARES OF M /S.TURBOTECH ENGINEERING LTD., FOR MAKING AN OFF MARKET PURCHASE . IN THE CASE OF SHRI HEERACHAND KANUNGA (SUPRA) RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE WHAT WAS HELD BY THE CO-ORDINATE BEN CH IS REPRODUCED HEREUNDER:- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMIT TEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT T O BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO BE SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE S IDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADMITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL G AINS TO HIS CLIENTS. THE SAID SHRI ASHOK KUMAR KAYAN ALSO ALLE GEDLY SEEMS TO HAVE PROVIDED THE ASSESSEES NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STATEMENT GIVEN BY SH RI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF A SSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVI DED TO THE ASSESSEE FOR CROSS-EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROSS-EXAMINATION, THE STATEMENT REMAINS MERE INFOR MATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMEN T. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PU RCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTAL ING INTO RS.3,00,000/-. THE ASSESSEE CLAIMS TO HAVE PAID CAS H FOR THE PURCHASE OF THESE SHARES. THE PRIMARY QUESTION WOU LD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BE EN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHARE CERTIFICATES AND THE SHARE TRANS FER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A (3)? WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF TH E ASSESSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSACTION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANS FERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE? TO WHOM WERE THE SHARES SOLD DURING THE ASSESSMENT YEARS 2010-11 & 2011-12? WHEN WERE THE CHEQUES RECEIVED BY THE ASSESSEE? FROM WH OM DID THE ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH D EPOSIT ITA NO.701 /MDS/2018 :- 5 -: IMMEDIATELY PRIOR TO THE ISSUING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE SHARES OF THE ASSES SEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATE S THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL, KO LKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE A SSESSEE IN GOOD FAITH HAS PURCHASED THE SHARES OF M/S.BPL FROM A SUB-BROKER IN HIS FRIENDS CIRCLE. WHAT IS THE TRUE NATURE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTUALLY PURCHASE THE SH ARES? DID THE ASSESSEE TAKE POSSESSION OF THE SHARES IN ITS P HYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTI ONED THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRAD ING IN SHARES. IF THIS IS SO, DOES THE DEMAT ACCOUNT SHOW SUCH TRA NSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRA NSACTION. THUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING THE APP EALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SH OW THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTH S. THIS IS BECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND T HE SHARES OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOU NT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSS ESSION OF THE SHARES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHCOMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS S UBMITTED BY THE LD.AR THAT THE DEMAT WAS DONE ON VARIOUS DATES. TH EN THE QUESTION RISES AS TO WHY THERE IS SO MUCH OF DIFFER ENCE IN THE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCHASED T OGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M/S.BPL COMPA NY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD T O THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/- TO RS.35 2/- IN A PERIOD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE TH E SHARE VALUE OF THE COMPANY WAS HITTING THE CIRCUIT BREAKER OF T HE STOCK EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WOULD HA VE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE NOT COM ING OUT OF THE ASSESSMENT ORDER NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THIS APPEAL MUST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUD ICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBST ANTIATE ITS CASE AND WE DO SO. 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGAINST T HE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GI VEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVID ED TO THE ASSESSEE FOR CROSS-EXAMINATION. HOWEVER, THE ASSES SEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITAL GAIN S IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10 (38) BY PROVIDING ALL SUCH EVIDENCES AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCING THE PERSONS THROUGH WHOM THE ITA NO.701 /MDS/2018 :- 6 -: ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURC HASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROKER, F RIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. 6. FACT SITUATION IN THE CASE BEFORE ME IN MY OPINION IS SIMILAR TO THE ONE DECIDED BY THE CO-ORDINATE BENCH. THE QU ESTION IS WHETHER TRANSACTIONS CLAIMED BY THE ASSESSEE WERE REAL OR S HAM. LD. ASSESSING OFFICER PREDOMINATELY RELIED ON THE REPORTS OF DI RECTORATE OF INCOME TAX (INVESTIGATION) KOLKATA AND DELHI FOR COMING T O A CONCLUSION THAT M/S.TURBOTECH ENGINEERING LTD., WAS A PENNY STOCK C OMPANY AND THE TRANSACTIONS WERE ENTERED ONLY FOR CLAIMING EXEMPT ION U/S.10(38) OF THE ACT ON LONG TERM CAPITAL GAINS WHICH WERE BOGUS . HOWEVER, IN MY OPINION, BEFORE RELYING ON SUCH INVESTIGATION REPO RTS, IT SHOULD HAVE BEEN PUT TO AN ASSESSEE FOR REBUTTAL. RULES OF NAT URAL JUSTICE REQUIRES THAT EVIDENCE WHICH IS USED AGAINST AN ASSESSEE IS FIRST PUT TO IT AND EXPLANATION SOUGHT, BEFORE RELIANCE IS PLACED ON SU CH EVIDENCE. I AM THEREFORE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE LD. ASSESSING OFFICER. I SET ASIDE THE ORDERS OF TH E LOWER AUTHORITIES AND REMIT THE QUESTION REGARDING GENUINENESS OF THE CLA IM OF LONG TERM CAPITAL GAINS FROM ALLEGED SALE OF SHARES OF M/S.T URBOTECH ENGINEERING LTD., BACK TO THE LD. ASSESSING OFFICER FOR CONSIDE RATION AFRESH IN ACCORDANCE WITH LAW. ASSESSEE HAS TO BE GIVEN ALL RECORDS RELIED ON BY THE LD. ASSESSING OFFICER SO THAT IT CAN OFFER ITS EXPLANATION. LD. ITA NO.701 /MDS/2018 :- 7 -: ASSESSING OFFICER IS ALSO TO KEEP IN MIND THE SPIR IT OF THE DIRECTION GIVEN BY THE TRIBUNAL IN THE CASE OF HEERACHAND KA NUNGA (SUPRA) WHILE COMING TO A CONCLUSION. GROUNDS 2 TO 6 OF TH E ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 7. VIDE ITS GROUND 7, ASSESSEE IS AGGRIEVED ON A DISAL LOWANCE MADE OF INTEREST RS.2,41,460/-. NO ARGUMENTS WERE ADVANCES BY THE LD.AR ON THIS GROUND. HENCE, THIS GROUND IS DISMIS SED AS NOT ARGUED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 1 ST DAY OF AUGUST, 2018, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER # / CHENNAI $ / DATED: AUGUST 01, 2018 TLN '( )( / COPY TO: 1 . / APPELLANT 3. * () / CIT(A) 5. ( / / DR 2. / RESPONDENT 4. * / CIT 6. / GF