SHRI SUBHAS KUMAR , RANCHI V. DCIT CIRCLE-3 , RANCHI

ITA 75/RAN/2018

AI Insights

The case involves an appeal by Subhash Kumar against the order of the Commissioner of Income-tax (Appeals), Ranchi, which confirmed the addition of Rs. 75,10,324 as unexplained cash credits under section 68 of the Income Tax Act, 1961. The addition was initially made by the Assessing Officer, who deemed the transactions as sham based on the manner of trading against SEBI norms. The Tribunal, referencing a judgment by the Hon'ble Jharkhand High Court, found that the assessee had maintained the genuineness of the transactions despite the involvement of a tainted broker, and thus, the addition was unjustified.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 299812 (ITAT-RANCHI)
• Duration Of Justice: 4 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 26-03-2018
• Other Referred Cases: CIT vs. Arun Kumar Agarwal (HUF), PCIT vs. Swati Bajaj
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Benefit of exemption; Set aside
• Section: 68; 143(3); 143(1); 250; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “RANCHI BENCH, RANCHI VIRTUAL HEARING AT KOLKATA ®ी संजय गग ª , Æयाियक सदÖय एवं डॉ. मनीष बोरड, ल े खा सदÖय क े सम± Before SHRI SANJAY GARG, JUDICIAL MEMBER & DR. MANISH BORAD, ACCOUNTANT MEMBER I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi.......................................Appellant C/o K.C. Tak & Co Chartered Accountants 1, New Anantpur, Ranchi - 834002. [PAN: ABQPK5958C] Vs. DCIT, Circle-3, Ranchi........................................Respondent Appearances by: Shri Devesh Poddar, Advocate, appeared on behalf of the Appellant. Shri Saumyajit Das Gupta, CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : August 25 th , 2022 Date of pronouncing the order : November 22, 2022 आद े श/ORDER Per Manish Borad, Accountant Member: I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 2 of 8 This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2014-15 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals), Ranchi [in short ld. “CIT(A)”] dated 16.01.2018 which is arising out of the assessment order framed u/s 143(3) of the Act dated 21.12.2016. 2. Brief facts of the case are that the assessee is an individual. Income of Rs.5,24,280/- declared in the return of income filed on 29.09.2014 for assessment year 2014-15. After that the case was selected for scrutiny through CASS following by serving notices u/s 143(2) and 143(1) of the Act. The Assessing Officer examined the transactions during the year including the exemption claimed for long-term capital u/s 10(38) of the Act at Rs.75,10,324/-. Though the Assessing Officer was satisfied with the genuineness of the purchases, transfer of the shares in demat account and the sales effected through the stock brokers but he was not satisfied in the manner in which the shares have been traded against the norms of SEBI and stock exchange. Accordingly, he held the same as sham transaction and denied the benefit of section 10(38) of the Act and made addition of unexplained cash credits u/s 68 of the Act at Rs.75,10,324/- and assessed the income of Rs.80,34,604/-. 3. Aggrieved assessee preferred appeal before ld. CIT(A) and filed details of transaction so as to prove the genuineness of the exempt income claimed by the assessee but failed to find any favour as ld. CIT(A) held that since the key financial figures/ratio I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 3 of 8 of the listed company was unfavourable and well below industry standards, continuous negative/Nil profit, negative earning per share, abnormal rise of the share price. The alleged transaction is a sham in nature and thus confirmed the view taken by the Assessing Officer. 4. Now, the assessee is in appeal before this Tribunal. At the outset, the ld. counsel for the assessee after referring to the details of the transaction stated that the issue raised is squarely covered in favour of assessee by the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Arun Kumar Agarwal (HUF) in Tax Appeal No.04 of 2011 dated 13 th July 2012. 5. Per contra, the Departmental Representative supporting the orders of both the lower authorities further stated that recently Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj in IA No.GA/2/2022 and Others dated 14.06.22 has held such type of transaction of earning bogus long-term capital gain through entry providers as sham and bogus in nature and benefit of exemption of section 10(38) has been denied and addition u/s 68 has been confirmed. 6. We have heard rival contentions and perused the records placed before us. Benefit of exemption u/s 10(38) of the Act from sale of equity shares of listed company denied by ld. CIT(A) is in challenge before us at the instance of assessee. The assessee claimed to have earned long-term capital gain in sale of equity shares of listed company held for more than 12 months. The ld. I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 4 of 8 Assessing Officer denied the benefit u/s 10(38) of the Act observing as follows: “There is no dispute that the purchases were fully verified through Contract Note and that the purchase of shares were disclosed in the Balance Sheet filed for the period ending on 31.03.2014 and earlier years. Even the shares purchased were transferred under the Demat account. The sales were effected through the Stock broker and sales invoices were also furnished during the course of assessment proceedings. The payment of the sales consideration was received by account payee cheques or demand draft and were deposited into the bank account of the assessee. The shares in question have been transferred as per proceedings. But the manner in which these shares have been traded is against the norms of SEBI and Stock Exchange, making the whole transaction as a sham transaction.” 6.1 From the above, we notice that the ld. Assessing Officer was satisfied from the details of purchase and sales filed by the assessee and only doubted the manner of share trading on the stock exchange and treated the transaction as sham. We further find that similar issue came for adjudication before the Hon’ble Jharkhand High Court in the case of CIT, Jamshedpur vs. Arun Kumar Agarwal (HUF) (supra) wherein also transaction of earning of long term capital gain from sale of equity shares of a company namely M/s Srinidhi Trading Ltd. was in dispute where the price of equity shares at Rs.9.02 on 11.03.2004 reached to Rs.160.10 on 29.08.2005 and in the SEBI’s enquiry report it was stated that such sharp increase in the share price was on account of bogus dealing by the share brokers. Hon’ble Jurisdictional High Court after considering the facts of the case, held in favour of assessee observing as follows: “We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 5 of 8 Officer was much influenced by the enquiry report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Tax Appeal No.4 of 2011 with analogous case Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has risen from Rs.5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share, then how it can be inferred that such person entered into sham transaction few years ago and prepared for getting the benefit Tax Appeal No.4 of 2011 with analogous case after few years when the share will start rising steeply. In present case even there was no reason for such suspicion when the shares were purchased years before the unusual fluctuation in the share price. Here in this case, we have given example of one of the Tax Appeal wherein the shares were purchased in the year 2004 and were sold in the year 2006, which is said to be one of the case wherein the gap in the purchase and sale of the shares was narrowest. In other cases as we have noticed from the various orders of the C.I.T(Appeals) that, the shares of some of the companies were purchased by the assessees even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessees had held the shares much prior to 12 months of the sale of the shares. Hence, these Appeals are dismissed.” I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 6 of 8 From perusal of the above findings of the Hon’ble High Court, the same is squarely covered on the facts of the instant case in appeal before us. However, before us, the ld. Departmental Representative has referred to the recent judgment of Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (supra). On being confronted about the applicability of the said judgment of the Hon’ble Calcutta High Court, the ld. counsel for the assessee, submitted as follows: “8. We would submit that though there are contradicting decisions on this issue especially now the recent decision of Hon'ble Calcutta High Court favouring the revenue department, however we stand by the legal position as held by the Jurisdictional High Court and state that Decision of Jurisdictional High Court is binding, even if contrary view held by non-jurisdictional High Courts. The Hon'ble Rajasthan High Court in the case of CIT -vs.- Sunil Kumar (1996) 212 ITR 238 (Raj.) held that the decision of the Jurisdictional High Court is binding on the Income tax Authorities and the Tribunal within the jurisdiction of the Court and the contrary decision of another High Court is not relevant, and that a point decided by the Jurisdictional High Court can no longer be considered to be a debatable issue. The Hon'ble Bombay High Court in the case of Subramaniam -vs.- Siemens India Ltd. (1985) 156 ITR 11 (Bom.) held that so far as the legal position is concerned, the ITO would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is functioning, irrespective of the pendency of any appeal Or special leave application against the judgment. He would equally be bound by a decision of another High Court on the point, because not to follow that decision would be to cause grave prejudice to the assessee. However, in the case where there is conflict of views between different High Courts, ITO must follow the decision of the High Court within whose jurisdiction he is functioning. The Court further added that in cases where there is a conflict between the decisions of I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 7 of 8 non-jurisdictional High Courts, the ITO must take the view which is in favour of the assessee and not against him. As such, quoting the above, we submit that the addition made by Ld. AO on suspicious and summary findings is illegal and fit to be deleted. The AO was bound to bring on record the adverse evidences against the assessee by conducting independent query on the report of the SEBI and draw its findings, whereas in case of the assessee the AO has accepted the genuineness of the purchase, sale, holding of the shares and its reflection in the books of the assessee however has made the addition simply stating that the share broker was tainted and as such, the transaction of the assessee is a sham transaction. This finding of the Ld AO is baseless and thus addition made of Rs. 75,10,324/- is fit to be deleted.” 7. In view of the above discussion, as well as judgements Hon’ble Bombay High Court in the case of Subramaniam vs. Siemens India Ltd. (supra), since we are bound by the judgment of the Hon’ble Jurisdictional High Court and the same has also not been considered by the Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), and also under the given facts of the case where Ld. A.O has not doubted the genuineness of purchase and sale, we are inclined to hold in favour of the assessee as the issue raised in the instant appeal is squarely covered by the judgment of Hon’ble Jurisdictional High Court in the case of CIT, Jamshedpur vs. Arun Kumar Agarwal (HUF) (supra). We further want to make it clear that our view in the instant appeal is purely based on the facts of the present appeal and therefore should not be taken as a binding precedent in other cases involving similar issue. We therefore set aside the findings of the ld. CIT(A) and I.T.A. No.: 75/Ran/2018 Assessment Year: 2014-15 Subhash Kumar, Ranchi Page 8 of 8 allow the Ground No.1 and 2 raised by the assessee challenging the addition made u/s 68 of the Act. 8. In the result, the appeal filed by the assessee is allowed. Kolkata, the 22 nd November, 2022. Dated: 22.11.2022 RS Copy of the order forwarded to: 1. Subhash Kumar, Ranchi 2. DCIT, Circle-3, Ranchi 3. CIT(A)- 4. CIT- 5. CIT(DR) /True copy/ By order Assistant Registrar ITAT, Kolkata Benches Kolkata Sd/- [Sanjay Garg] Sd/- [Manish Borad] Judicial Member Accountant Member