PRITIBEN VINODCHANDRA MEHTA, MUMBAI V. ASSTT. CIT -23(2), MUMBAI

ITA 752/MUM/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7348 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 09-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained investment; Penny stocks; Set aside; Capital Gains
• Section: 147; 69; 148; 143(1); 143(2)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “SMC” Bench, Mumbai Shri Shamim Yahya (AM) I.T.A. No. 752/Mum/2021 (Assessment Year 2012-13) Pritiben Vinodchandra Mehta 508, Kalbadevi Road, Near Edward Cinema, Kalbadevi Mumbai-400 002. PAN : AAHPM3597R Vs. ACIT-23(2) 114, 1 st Floor Matru Mandir Tardeo Road Mumbai- 40007. (Appellant) (Respondent) Assessee by Shri Dharmesh Shah Department by Shri T. Sankar Date of Hearing 05.01.2022 Date of Pronouncement 08.03.2022 O R D E R This appeal by the assessee is directed against the order of National Faceless Appeal Centre (NFAC), Delhi vide order dated 26.3.2021 and pertaining to Assessment year 2012-13. 2. The grounds of appeal read as under : 1. The Ld. CIT(A) has erred in law and in facts in not appreciating that the reopening of assessment u/s. 147 of the Act was bad in law and invalid. 2. The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated that the reopening of the assessment u/s. 147 of the Act was invalid since the pre-requisites of re-opening has not been complied with. 3. The Ld. CIT(A) has erred in law and in facts in confirming the addition of 21,23,378/- on account of long term capital gain on sale of equity shares of Diamant Infrastructure Ltd. allegedly claimed exempt u/s. 10(38) of the Act and treating the same as unexplained investments u/s 69 of the Act. 3. Brief facts of the case are as under :- The assessee is an individual deriving income from salary and income from other sources. The assessee filed ROI for A.Y 2012-13 on 31.07.2012 declaring total income of Rs.23,11,030/-. The return of income was processed Pritiben Vinodchandra Mehta 2 u/s 143(1) of the I.T.Act,1961 on 07.06.2013. Subsequently the information received from DGIT (Inv), Mumbai vide e-mail dated 28.03.2019 that M/s Diamant Infrastructure Ltd. is a penny stock listed on BSE and involved in providing accommodation entry in the garb of long term/short term capital gain. It was also been informed that the assessee Pritiben Vinodchandra Mehta has traded in this scrip during the F.Y. 2011-12 to the tune of Rs.21,23,378/-. 4. Further the Assessing Officer noted that the investigation wing have also made available a brief report in respect of investigation carried out in the said company. Subsequently the notice under section 148 of the I.T.Act was issued to the assessee. The Assessing Officer noted that the assessee has not filed the submission. Thereafter the Assessing Officer referred to the information received from DGIT(Inv) on email which revealed that M/s. Diamant Infrastructure Ltd. is a penny stock listed on BSE and has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of long term capital gain or short term capital gain. He referred to various share brokers, exit provider. That this was found to be used for providing bogus long term capital gains/short term capital gain. He also noted that the assessee traded in this script during F.Y. 2011-12 and received pay out as sales consideration to the tune of Rs. 21,23,378/-. Thereafter the Assessing Officer referred to the finding in the case of M/s. Diamant Infrastructure Ltd., Script analysis, price movement etc. The Assessing Officer referred to the modus operandi in such cases. Finally he held that because of this investigation the assessee has traded in this script during F.Y. 2011-12 at Rs. 21,23,378/-. He held that the assessee has revised long term capital gain and claimed them to be exempt income under section 10(38) of the Act and same is treated as unexplained investment under section 69 of the Act. 5. Against the above order assessee has filed appeal before learned CIT(A). The NFAC has passed the appellate order. Before it in the statement of facts, the assessee had submitted that it has not traded in the impugned shares on its behalf. That the assessee has given loan to M/s. Ira Aarna Online Painting Pvt. Pritiben Vinodchandra Mehta 3 Ltd. and in lieu thereof for security the shares of the said company belongs to M/s. Ira Aarna Online Painting were transferred to the assessee which was sold to return the amount of loan by the assessee. That this was transaction entered into by the assessee and assessee has not claimed any long term capital gain. Hence, it was submitted that finding of the Assessing Officer is totally incorrect. The NFAC firstly addressed the issue of challenge under section 147 of the Act. The NFAC narrated brief facts which included following “in this case addition of Rs. 21,23,378/- has been made under section 69 of the Act as unexplained investment.” The assessee has traded the share of M/s Diamant Infrastructure Ltd. in F.Y. 2011-12 of Rs. 21,23,378/- and has claimed exemption u/s 10(38) as Long Term Capital Gain. The NFAC adjudicated the issue as under : “The detailed investigation was carried out by the Investigation wing at Kolkata into the penny stock cases. In the detailed investigation, it was held that the companies hardly do any business and they are only entry providers. The statements of various operators, entry providers and stock brokers were recorded and they admitted of providing the accommodation entries in the term of LTCG/STCG. The Mumbai Investigation wing had also carried out search and seizure operations, where these penny stock companies were identified and cash trails were unearthed. In their statements the operators and the brokers clearly admitted about providing bogus Long Term Capital Gain to the beneficiaries. Hence, the A.O. made the addition, after giving the clear cut finding and after relying upon the statements of the brokers/operators regarding bogus LTCG. In the appellate proceedings before me, the written submissions have been filed. I have gone through the submissions of the assessee. Firstly, the assumption of jurisdiction u/s 148 has been challenged. The same is not correct as the A.O. had initiated the proceedings on the basis of information from the investigation wing. All the judgments, relied upon are not relevant as the A.O. had got information and on the basis of the same, the A.O. had formed the opinion and initiated the proceedings. Reliance is made upon the judgment of Hon'ble Supreme Court in the case of Raymond Woolen Mills Ltd. vs ITO 234CTR 34,where it has been held that the A.O is justified on forming his belief on any information from outside, and it cannot be challenged at this stage. Further, the submissions had been made that the transaction is through banking channels and the A.O. had not proved how they are penny stocks. In fact, the onus was on the assessee to prove how M/s Diamant infrastructure Ltd. is a genuine company, what is its turnover, its balance sheet, its assets, Pritiben Vinodchandra Mehta 4 and liabilities. The A.O had given the clear finding that it is a paper company, only providing entries and bogus LTCG to the beneficiaries. In CIT vs N.R. Portfolio Pvt. Ltd., it has held by Hon'ble lordship of Delhi High Court that transaction through banking channel does not make any accommodation entry a genuine transaction. Hon'ble Supreme Court in the case of Pr CIT (Central)-1 vs NRA Iron & Steel Pvt. Ltd. held that the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO. Reliance is made upon both the judgments of Hon'ble Courts. Hence, the addition of the A.O of Rs. 21,23,378/- as bogus long term capital gains is confirmed, and the appeal of the assessee is dismissed.” 6. Against the above order the assessee is in appeal before the ITAT. 7. I have heard both the parties and perused the records. At the outset learned Counsel of the assessee submitted that the assessee has duly filed objection to the reopening vide his letter dated 14.5.2019. The Assessing Officer has ignored the objections filed and proceeded to issue notice under section 143(2) of the Act. Hence learned counsel submitted that not disposing of the objections against reopening of assessment is a jurisdictional defect in assessment order. Hence it should be treated as invalid and void ab initio. Further learned counsel submitted upon recording of the reasons and before issue of notice under section 148 of the Act Assessing Officer had obtained the approval from the higher authorities under section 151 of the Act. He claimed that the same is also invalid and not in accordance with law. In this regard learned counsel referred to the copy of the approval obtained. 8. On merits of the case, learned counsel reiterated the submissions in the statement of facts submitted before NAFC. He submitted that the assessee has actually given loan to M/s. Ira Aarna Online Painting Pvt. Limited. That the said loans were given against the securities. The assessee has submitted that the share belonged to the third party and third party had given the shares of Diamant Infrastructure to the assessee as security for loan given. That upon instruction of the said company assessee had sold shares of Diamant Infrastructure Ltd. against loan. That this is evident from copy of contract note Pritiben Vinodchandra Mehta 5 issued by the broker as well as Demat account which is reflected at paper book page No. 34 & 39. That in fact the assessee has returned the amount realized in excess of the loan to the assessee. That confirmation in this regard was also provided. Further he submitted that the Assessing Officer has not brought anything on record to show that the assessee has purchased the shares at a lower price and sold it at higher price. Even without prejudice, learned Counsel of the assessee referred to various case laws in support of the merits of the issue. 9. Per contra, learned Departmental Representative relied upon the orders of the authorities below. 10. I note the first objection of the assessee is that the Assessing Officer has non disposed of the objection of reopening. That this is a fatal mistake. In paper book page 26-30 objection raised by the assessee against reopening dated 15.5.2019 are duly attached. When the assessee has duly objected to the reopening it is incumbent upon the Assessing Officer to dispose of the same. Not disposal of objection to reopening is a fatal mistake and vitiates the order of Assessing Officer. Hon'ble Jurisdictional Bombay High Court decision in Asian Paints Ltd. Vs. DCIT (296 ITR 90) duly supports this proposition. When it remains uncontroverted that the assessee has objected to the reopening and the same was not disposed off the validity of jurisdiction by the Assessing Officer loses its legality on the touchstone of the aforesaid decision of Hon'ble Bombay High Court. Hence, I set aside the orders of the authorities below on the ground of jurisdiction defect. 11. As regards the merits of the case I note that the Assessing Officer has added unexplained investment under section 69 of the Act. Section 69 of the Act read as under :- “Unexplained investments. 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of Pritiben Vinodchandra Mehta 6 account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.” 12. Section 69 of the Act envisages addition for investments which are not recorded in the books of account. Thus section 69 can be invoked for investments which are not recorded in the books of account. However, addition has been made in this case for bogus long term capital gains said to have been claimed exempt under section 10(38) by the assessee. As explained by the assessee in the statement of fact before NFAC as well as before ITAT the assessee never claimed any such exemption under section 10(38) of the Act. The assessee’s explanation is that it has given loan to some parties which gave the said shares to the assessee as securities. That the said party asked the assessee to sell the said shares and after selling the said shares assessee made entries for adjusting the amount received from loan given to the said party and returned the balance amount to the said party. Hence, there is no claim of long term capital gain under section 10(38) of the Act in the books of the assessee. This aspect has been duly supported by documents submitted. None of the above has been controverted by the Revenue. Hence, addition has been made without considering facts, law and income returned by the assessee. Such order without application of mind is not at all sustainable in law. Hence I am of the considered opinion that the addition made under section 69 of the Act claimed to be for long term capital gain claimed exemption by the assessee under section 10(38) of the Act is not actually correct and same is liable to be set aside on this account also. Accordingly, in the background of the aforesaid discussion and precedent I set aside the orders of the authorities below and decide the issue in favour of the assessee. Pritiben Vinodchandra Mehta 7 12. In the result, appeal filed by the assessee stands allowed. Order pronounced in the open court on 08.3.2022. Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER Mumbai; Dated : 08/03/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai