PRAVEEN KUMAR (HUF), CHENNAI V. ITO NON CORP WARD 5 (4), CHENNAI

ITA 702/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4984 (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: 133A; 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.702 /CHNY/2018 / ASSESSMENT YEAR : 2014-2015. MR.PRAVEEN KUMAR (HUF), NO.69, 3 RD FLOOR, MINT STREET, SOWCARPET, CHENNAI-600 079. [PAN: AAMHP 9939 H] 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.702 /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 (IN SHORT THE ACT) ON LONG TERM C APITAL GAINS ARISING OUT OF SALE OF 6500 EQUITY SHARES OF ONE M/S.GRAND MA TRADING AGENCIES LTD., AND TREATING THE CONSIDERATION OF 1 7,83,870/- RECEIVED ON SUCH SALE UNDER THE HEAD INCOME FROM OTHER SOU RCES. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE HAD ACQUIRED 4200 EQUITY SHARES OF ONE M/S.GRANDMA TRAD ING AGENCIES LTD., THROUGH OFF MARKET PURCHASE ON 10.01.2013. AS PER THE LD.AUTHORISED REPRESENTATIVE, ASSESSEE SOLD THESE S HARES ON 13.02.2014 AFTER DEMATTING, THROUGH A RECOGNIZED ST OCK EXCHANGE. HOWEVER, AS PER THE LD. AUTHORISED REPRESENTATIVE, LOWER AUTHORITIES DISBELIEVED SALE OF SHARES OF M/S.GRANDMA TRADING A GENCIES LTD., RELYING ON A REPORT OF DIRECTORATE OF INCOME TAX (I NVESTIGATION) KOLKATA AND DELHI WHICH APPARENTLY MENTIONED THAT M/S.GRANDMA TRADING AGENCIES LTD., WAS A PENNY STOCK COMPANY AN D A STATEMENT OF ONE SHRI ANIL AGARWAL GIVEN UNDER SECTION 133A OF T HE ACT. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT PURCH ASE OF THE SHARES 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 ITA NO.702 /MDS/2018 :- 3 -: PR THE LD. AUTHORISED REPRESENTATIVE WERE THROUGH B ANKING CHANNELS. 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.GRANDMA TRADING AGENCIES LTD. AS PER THE LD. DEPARTMENTAL R EPRESENTATIVE, ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW, HO W HE IDENTIFIED THE SHARES OF M/S.GRANDMA TRADING AGENCIES LTD., FO R MAKING AN OFF MARKET PURCHASE. LD. DEPARTMENTAL REPRESENTATIVE ALSO PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH I N 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 ITA NO.702 /MDS/2018 :- 4 -: 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.GR ANDMA TRADING AGENCIES LTD. IT APPEARS THAT ASSESSEE COULD NOT PR ODUCE ANY EVIDENCE AS TO HOW IT IDENTIFIED EQUITY SHARES OF M/S.GRANDM A TRADING AGENCIES LTD., FOR MAKING AN OFF MARKET PURCHASE. IN THE CA SE 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 ITA NO.702 /MDS/2018 :- 5 -: 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 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 ITA NO.702 /MDS/2018 :- 6 -: 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 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, AND THE STAT EMENT OF ONE SHRI ANIL AGRAWAL FOR COMING TO A CONCLUSION THAT M/S.G RANDMA TRADING AGENCIES LTD., WAS A PENNY STOCK COMPANY AND THE TR ANSACTIONS WERE ENTERED ONLY FOR CLAIMING EXEMPTION U/S.10(38) OF THE ACT ON LONG TERM CAPITAL GAINS WHICH WERE BOGUS. HOWEVER, IN M Y OPINION, BEFORE RELYING ON SUCH INVESTIGATION REPORTS AND STATEMEN T OF A THIRD PARTY, IT SHOULD HAVE BEEN PUT TO AN ASSESSEE FOR REBUTTAL. R ULES OF NATURAL JUSTICE REQUIRES THAT EVIDENCE WHICH IS USED AGAINS T THE ASSESSEE IS FIRST PUT TO IT AND EXPLANATION SOUGHT, BEFORE RELI ANCE IS PLACED ON SUCH EVIDENCE. I AM THEREFORE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE LD. ASSESSING OFFICER. I SET ASID E THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE QUESTION REGARDING GENUINENESS OF THE CLAIM OF LONG TERM CAPITAL GAINS FROM ALLEGED S ALE OF SHARES OF ITA NO.702 /MDS/2018 :- 7 -: M/S.GRANDMA TRADING AGENCIES LTD., BACK TO THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. A SSESSEE HAS TO BE GIVEN ALL RECORDS RELIED ON BY THE LD. ASSESSING OF FICER SO THAT IT CAN OFFER ITS EXPLANATION. LD. ASSESSING OFFICER IS ALS O TO KEEP IN MIND THE SPIRIT OF THE DIRECTION GIVEN BY THE TRIBUNAL IN TH E CASE OF HEERACHAND KANUNGA (SUPRA) WHILE COMING TO A CONCLUSION. GROU NDS 2 TO 6 OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 7. VIDE ITS GROUND 7, ASSESSEE IS AGGRIEVED ON A DISAL LOWANCE MADE OF INTEREST OF RS.67,500/-. 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