MR JITESH BANWARI BHARGAV, MUMBAI V. ITO 24 (2)(2), MUMBAI

ITA 7908/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0977 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 24-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S IYENGAR LD
• Assessee Lawyers: GIRISH DAVE LD
• Keywords: Unexplained cash credit; Income from undisclosed sources; Set aside; Capital Gains
• Section: 69C; 143(3); 133(6); 131; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , , BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO.7908/MUM/2019 ( / ASSESSMENT YEAR: 2014-15) SHRI JITESH BANWARI BHARGAV B/501, PRATIK, JP ROAD OPP. DHAKE COLONY, D.N.NAGAR, ANDHERI (W), MUMBAI 400 053 / VS. I TO - 24(2 )( 2 ) ROOM NO.514, 5 TH FLOOR PIRAMAL CHAMBERS PAREL, MUMBAI - 400012 $% # ./ # ./PAN/GIR NO. AFVPB-3415-J ( '%' /APPELLANT ) : ( ()%' / RESPONDENT ) ASSESSEE BY : SHRI GIRISH DAVE-LD. AR REVENUE BY : SHRI S.S.IYENGAR LD. DR / DATE OF HEARING : 16/04/2021 / DATE OF PRONOUNCEMENT : 12/07/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR (AY) 2014-15 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-36, MUMBAI [CIT(A)], APPEAL NO.CIT(A), MUMBAI-36/11235/ 2016-17 DATED 07/11/2019 ON FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER DATED 07.11.2019 OF THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) {THE CIT(A)} CONFIRMING THE ARBITRARY, UN JUST AND ERRONEOUS ORDER OF LEARNED ASSESSING OFFICER (AO) IS BAD IN LAW, ARBIT RARY AND UNJUST WHICH REQUIRES TO BE REVERSED, CANCELLED AND SET ASIDE. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE IN UPHOLDING ADDITIONS OF RS.2,36,02,476/- MADE BY LEARNED AO UNDER SECTION 68 OF THE INCOME TAX ACT, 1961 (THE ACT). 2 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE IN UPHOLDING ADDITIONS OF RS.7,08,074/- MADE BY LEARNED AO UNDER SECTION 69C OF THE INCOME TAX ACT, 1961 (T HE ACT). 4. THE LEARNED CIT(A) ERRED IN LAW IN CALCULATING T HE GROSS TAX IN INCOME COMPUTATION FORM AS RS.73,25,977/- INSTEAD OF RS.72 ,77,383/-. BECAUSE OF THIS, SURCHARGE, EDUCATION CESS AND INTEREST ARE WRONGLY CALCULATED. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE IN UPHOLDING REJECTION BY LEARNED AO, OF THE CLAIM OF THE INCOME EXEMPT UNDER SECTION 10(38) OF THE ACT MADE BY APPELLANT IN THE RETURN OF INCOME. 2. THE LD. AR, AT THE OUTSET, RELIED UPON THE DECIS ION OF TRIBUNAL IN THE CASE OF DIPESH RAMESH VARDHAN V/S DCIT (ITA NOS.7648/MUM/2019 & ORS. ORDER DATED 11/08/2020) TO SUBMIT THAT THE FACTS AS WELL AS ISSUES ARE IDENTICAL IN ALL RESPEC T. IT HAS BEEN SUBMITTED THAT THIS CASE LAW DEALS WITH GAINS ARISING OUT OF SALE OF SHARES OF AN ENTITY NAMELY M/S SUNRISE ASIAN LIMITED (SAL) WHICH IS SIMILAR TO THE ISSUE IN THE PRESENT APPEAL. THE LD. DR RELIED ON T HE ORDERS OF LOWER AUTHORITIES. 3. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING CITED ORDER O F THE TRIBUNAL. OUR ADJUDICATION TO THE SUBJECT MATTER WOULD BE AS GIVE N IN SUCCEEDING PARAGRAPHS. ASSESSMENT PROCEEDINGS 4.1 THE ASSESSEE BEING RESIDENT INDIVIDUAL WAS ASSE SSED U/S 143(3) ON 29/12/2016 WHEREIN IT WAS SADDLED WITH IMPUGNED ADDITION OF RS.236.02 LACS U/S 68 ON ACCOUNT OF SALE PROCEEDS O F CERTAIN SHARES. ANOTHER CONSEQUENTIAL ADDITION OF RS.7.08 LACS WAS MADE U/S 69C WHICH WAS NOTHING BUT ESTIMATED EXPENDITURE OF 3% A LLEGEDLY PAID BY ASSESSEE IN PROCURING THE BOGUS LONG TERM CAPITAL G AINS. 3 4.2 IT TRANSPIRED THAT THE ASSESSEE EARNED LONG-TER M CAPITAL GAINS (LTCG) OF RS.236.02 LACS ON SALE OF SHARES OF AN EN TITY NAMELY M/S SUNRISE ASIAN LIMITED (SAL). THE GAINS WERE CLAIMED TO BE EXEMPT U/S 10(38) OF THE ACT. THE 50000 NUMBERS OF SHARES OF T HIS ENTITY WERE STATED TO BE PURCHASED BY THE ASSESSEE ON 01/02/201 2 AT COST OF RS.10 LACS WHICH WERE ULTIMATELY SOLD DURING IMPUGNED FIN ANCIAL YEAR FOR AGGREGATE SALE CONSIDERATION OF RS.246.02 LACS GIVI NG RISE TO LTCG OF RS.236.02 LACS IN THE HANDS OF THE ASSESSEE. HOWEVE R, THIS SCRIP WAS ALLEGED TO BE A PENNY STOCK SCRIP, THE PRICES OF WH ICH WERE ALLEGEDLY RIGGED TO GENERATE HUGE PROFITS / LOSSES THROUGH MA NIPULATE AFFAIRS. IN THE INVESTIGATION CARRIED OUT BY THE DEPARTMENT, THIS S CRIP WAS FOUND AMONG THOSE SHARES WHICH WERE USED TO PROVIDE BOGUS LTCG TO VARIOUS BENEFICIARIES. THE INVESTIGATION DIRECTORATE CARRIE D OUT INVESTIGATION INTO 84 PENNY STOCK INCLUDING M/S SAL AND RENDERED DETAI LED FINDINGS WHICH INDICATED GENERATION OF BOGUS LTCG/STCL ENTRIES. TH E MODUS OPERANDI INVOLVING OPERATORS, INTERMEDIARIES AND THE BENEFIC IARIES WAS DETAILED IN THE INVESTIGATION REPORT. ONE OF SUCH PENNY STOCK O PERATORS NAMELY SHRI ANUJ AGARWAL, IN HIS STATEMENT, ADMITTED THAT THE S HARES OF M/S SAL WERE USED FOR PROVIDING ACCOMMODATION LTCG. SIMILA R STATEMENT WAS RECORDED FROM CERTAIN OTHER PERSONS WHICH LED LD. A O TO DISBELIEVE THE GENUINENESS OF GAINS EARNED BY THE ASSESSEE. 4.3 BASED ON THE INVESTIGATION REPORT AND DATA GATH ERED IN THE CASE OF ASSESSEE, IT TRANSPIRED THAT THE ASSESSEE SOLD SHAR ES ON VARIOUS DATES TO NUMBER OF BUYERS AS DETAILED IN PARA 7.1 OF THE ORD ER. NOTICES ISSUED U/S 133(6) TO ALL SUCH PURCHASERS WERE RETURNED BACK IN MOST OF THE CASES. THE ANALYSIS OF FINANCIAL STATEMENT OF M/S SAL REVE ALED THAT ITS FINANCIAL 4 WORTH WAS INSIGNIFICANT WHICH WOULD NOT JUSTIFY SUC H ABNORMAL INCREASE IN THE PRICE AS SHOWN. 4.4 IT ALSO TRANSPIRED THAT THE ASSESSEE INITIALLY PURCHASED SHARES OF AN ENTITY NAMELY SANTOSHIMA TRADELINK LIMITED (M/S STL ) IN OFFLINE MODE FROM M/S SILVERRICE MULTI TRADING PVT. LTD. @RS.20/ - PER SHARE. M/S STL GOT MERGED INTO M/S SAL WITH THE APPROVAL OF HONBL E BOMBAY HIGH COURT. ACCORDINGLY, NEW SHARES WERE ISSUED TO THE A SSESSEE WHICH WERE ULTIMATELY SOLD AT ABNORMALLY HIGH PRICE. FROM TRAD ING PATTERN, IT WAS OBSERVED THAT TRADES WERE EXECUTED WITH MUTUAL UNDE RSTANDING BY PLACING SIMULTANEOUS SYNCHRONIZED ORDERS AND THE GA INS WERE ARRANGED ONE. IT WAS ALSO NOTED THAT SEBI PASSED CERTAIN ORD ERS ON THE ISSUE OF MANIPULATION OF SHARE MARKET FOR PROVIDING ACCOMMOD ATION ENTRY OF BOGUS LTCG. THE ACTION INCLUDES PASSING INTERIM DIR ECTION & SUSPENSION OF TRADE ETC. 4.5 HOWEVER, THE ASSESSEE, VIDE REPLY DATED 26/12/2 016 CONTROVERTED THE ALLEGATIONS OF LD. AO BY SUBMITTING THAT IT HAS DULY FURNISHED PURCHASE & SALE NOTES, DEMAT ACCOUNT STATEMENT, BAN K STATEMENT AND DOCUMENTS RELATING TO CONVERSION OF SHARES RECEIVED BY THE ASSESSEE UPON AMALGAMATION OF M/S STL & M/S SAL. THE ASSESSE E ALSO SUBMITTED THAT INVESTIGATION CARRIED OUT BY THE INV ESTIGATION WING WAS GENERAL IN NATURE AND DO NOT COVER THE ASSESSEE IN SPECIFIC. IT WAS ALSO SUBMITTED THAT THE SHARES WERE NOT SOLD TO ANY DIRE CT PARTIES BUT SOLD ON STOCK EXCHANGE THROUGH REGISTERED BROKER NAMELY M/S TRUSTLINE SECURITIES LTD. IF ANY CONTRARY CONFESSION MADE BY ANY OF THESE PARTIES WAS USED AGAINST THE ASSESSEE, THE OPPORTUNITY TO C ROSS-EXAMINE SUCH CONFESSIONS NEED TO BE PROVIDED TO THE ASSESSEE. 5 4.6 HOWEVER, REJECTING ALL THESE SUBMISSIONS, LD. A O CONCLUDED THAT THE LTCG EARNED BY THE ASSESSEE WERE ARRANGED ONE. THE ASSESSEE COULD NOT PROVE UNUSUAL RISE IN SHARE PRICES. ALL T HESE TRANSACTIONS WERE CLOSED CIRCUIT TRANSACTIONS AND STRUCTURED ONE. IN STATEMENT U/S 131 GIVEN BY THE ASSESSEE, THE ASSESSEE COULD NOT COMME NT ABOUT PERFORMANCE OF THE COMPANY. THE ARGUMENT OF CROSS-E XAMINATION AS SOUGHT BY THE ASSESSEE WAS TO BE REJECTED SINCE THE SAME WAS SOUGHT AT THE FAG-END OF THE ASSESSMENT WHICH WAS NOTHING BUT TO LINGER THE ASSESSMENT PROCEEDINGS. THEREFORE, AT THIS STAGE, T HE SAME COULD NOT BE PROVIDED TO THE ASSESSEE. FINALLY, IN THE BACKGROUN D OF VARIOUS JUDICIAL PRONOUNCEMENTS, THE LTCG OF RS.236.02 LACS WERE ADD ED TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED CASH CREDIT U /S 68. THE LD.AO ESTIMATED ANOTHER ADDITION OF EXPENDITURE @3% AGAIN ST THESE TRANSACTIONS. APPELLATE PROCEEDINGS 5.1 DURING APPELLATE PROCEEDINGS, THE ASSESSEE ASSA ILED THE ADDITIONS BY WAY OF ELABORATE WRITTEN SUBMISSIONS WHICH HAVE ALREADY BEEN EXTRACTED IN THE IMPUGNED ORDER. DRAWING ATTENTION TO THE DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE, THE ASSESSEE D ENIED HAVING CARRIED OUT ANY TRANSACTIONS WITH ANY SUCH OPERATOR OF PENNY STOCK. IT WAS SUBMITTED THAT THE SHARES WERE SOLD THROUGH STO CK EXCHANGE THROUGH REGISTERED BROKERS. TO DRAW STRENGTH, RELIA NCE WAS PLACED ON FAVORABLE JUDICIAL PRONOUNCEMENTS. VARIOUS OTHER AR GUMENTS WERE ALSO MADE TO ASSAIL THE ACTION OF LD. AO. 5.2 THE LD. CIT(A), IN PARA-4, NOTED THAT THERE WAS INCREASE IN PRICE WHICH WAS ALMOST 472 TIMES THE PRICE PREVAILING AT THE TIME OF PURCHASE. THE RISE IN SHARE PRICE WAS NOT IN ACCORDANCE WITH ANY COMMERCIAL 6 PRINCIPLES OR MARKET FACTORS. THE DEPARTMENT RECORD ED THE STATEMENT OF SHRI ANUJ AGARWAL WHO WAS THE MAIN PERSON AND DIREC TOR OF M/S SAL WHEREIN IT WAS ADMITTED THAT THE PRICES WERE RIGGED TO PROVIDE BENEFIT TO NUMBER OF PERSONS ON COMMISSION BASIS. THE ASSESSEE WAS WELL AWARE OF THIS FACT AND ACCORDINGLY, PLACED THE SALE ORDER ON STOCK EXCHANGE THOUGH BROKERS. THE ALLEGATIONS OF LD. AO WERE BACK ED BY THE FINDINGS OF INVESTIGATION WING. THE FACTS OF THE CASE WERE FOUN D TO BE SIMILAR TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F SANJAY BIMAL CHAND JAIN V/S PR. CIT (89 TAXMANN.COM 196; 10/04/2 017) WHEREIN IT WAS OBSERVED THAT ASSESSEE HAD INDULGED IN DUBIOUS SHARE TRANSACTIONS MEANT TO ACCOUNT FOR THE UNACCOUNTED INCOME IN THE GARB OF LONG-TERM CAPITAL GAINS, THE ASSESSEE DID NOT TENDER ANY COGE NT EVIDENCE TO EXPLAIN AS TO HOW THE SHARES OF AN UNKNOWN COMPANY WORTH RS.5/- HAD JUMPED TO RS.485/- IN NO TIME. FINALLY, THE ASSESSE ES APPEAL WAS NOT ADMITTED. THE RATIO OF DECISION OF HONBLE SUPREME COURT IN SUMATI DAYAL V/S CIT (214 ITR 801) AS WELL AS IN KANWAR NATWAR SINGH WAS ALSO NOTED WHILE ADJUDICATING THE ISSUE. 5.3 IT WAS FURTHER OBSERVED BY LD. CIT(A), IN PARA- 7.4, THAT THE SCRIP DEALT WITH BY THE ASSESSEE WAS IDENTIFIED AS PENNY STOCK BECAUSE THE SHARE PRICES WERE NOT BASED ON BUSINESS RESULTS BUT THE SAME WERE INFLATED BY INSIDERS TRADING SOLELY TO GENERATE BO GUS CAPITAL GAINS OR LOSSES. THE ASSESSEE FAILED TO ADDUCE ANY PLAUSIBLE REASON FOR UNEXPECTED ESCALATION IN THE PRICE OF THE SCRIP. CO NSIDERING THE VARIOUS JUDICIAL PRONOUNCEMENTS AS ENUMERATED IN THE IMPUGN ED ORDER, THE GAIN EARNED BY THE ASSESSEE AS WELL AS ESTIMATED COMMISS ION WAS RIGHTLY ADDED TO THE INCOME OF THE ASSESSEE. ACCORDINGLY, T HE ACTION OF LD.AO IN 7 MAKING THE ADDITIONS WAS UPHELD. AGGRIEVED, THE ASS ESSEE IS IN FURTHER APPEAL BEFORE US. OUR ADJUDICATION 6. HAVING CONSIDERED FACTUAL MATRIX AS WELL AS THE ORDERS OF LOWER AUTHORITIES, WE FIND THAT THE ASSESSEE HAS PURCHASE D CERTAIN SHARES OF M/S STL IN AN OFF-MARKET DEAL. THESE SHARES ARE STA TED TO HAVE BEEN SOLD AT STOCK EXCHANGE THROUGH REGISTERED STOCK BRO KER. ON THE BASIS OF THE SAME, THE ASSESSEE SUBMITS THAT THERE WAS NO DI RECT DEALING WITH THE PURCHASER OF THE SHARES. THE ASSESSEE ALSO DENIES H AVING TRANSACTED WITH ANY OF THE PENNY STOCK OPERATOR AS IDENTIFIED BY THE INVESTIGATION WING. THE ASSESSEE HAS ALSO ASSAILED THE ADDITION O N THE GROUND THAT OPPORTUNITY OF CROSS-EXAMINATION HAS NOT BEEN PROVI DED. ON THE OTHER HAND, IT IS THE ALLEGATION OF THE REVENUE THAT THE GAINS SO EARNED BY THE ASSESSEE WERE PRE-ARRANGED ONE WITH THE CONNIVANCE OF THE PENNY STOCK OPERATOR AND IT WAS INCUMBENT ON THE ASSESSEE TO EX PLAIN SUCH A SHARP RISE IN SHARE PRICES WITHIN A SHORT SPAN OF TIME PA RTICULARLY WHEN THE ENTITY DID NOT HAVE ANY NET WORTH TO SUPPORT SUCH A SHARP INCREASE IN THE PRICES. REGARDING CROSS-EXAMINATION, IT HAS BEEN NO TED BY LD. AO THAT THE SAME WAS DEMANDED BY THE ASSESSEE AT THE FAG-EN D OF ASSESSMENT PROCEEDINGS AND THEREFORE, THE SAME WAS NOTHING EXC EPT TO LINGER ASSESSMENT PROCEEDINGS. THE LD. AO AS WELL AS LD. C IT(A) HAS RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS AS ENUMERATED IN THEIR RESPECTIVE ORDERS. THE LD. CIT(A) HAS ALSO RELIED UPON THE ORD ER OF HONBLE BOMBAY HIGH COURT IN SANJAY BIMAL CHAND JAIN V/S PR. CIT (SUPRA) WHICH HAS NOT ADMITTED ASSESSEES APPEAL. 7. ON THE OTHER HAND, LD. AR HAS PRIMARILY RELIED U PON THE ORDER OF COORDINATE BENCH OF THIS TRIBUNAL RENDERED IN DIPESH RAMESH VARDHAN 8 & ORS. V/S DCIT (ITA NOS.7648/MUM/2019 & ORS. DATED 11/08/2020) TO SUBMIT THAT THE FACTUAL MATRIX IS IDENTICAL AND THE CASE DEALS WITH THE SAME SCRIP. ACCORDING TO LD. AR, THIS RATIO OF THIS DECISION WOULD BE APPLICABLE TO THE ASSESSEE. 8. PROCEEDING FURTHER, DURING HEARING, A CLARIFICAT ION WAS SOUGHT BY THE BENCH AS TO THE OUTCOME OF THE INVESTIGATIONS CARRI ED OUT BY SEBI IN THE CASE OF THIS SCRIP. IT WAS SUBMITTED BY LD. AR THAT THERE IS NO ADVERSE FINDING IN CASE OF ASSESSEE AND FEW OTHER DECISIONS HAS ALREADY CONSIDERED THE FACT OF THE SEBI INVESTIGATION. IN T HIS BACKGROUND, LD. AR SUBMITTED THAT INVESTIGATION WOULD NOT IMPACT THE A PPLICABILITY OF THIS DECISION TO THE FACT OF THE CASE. 9. AFTER DUE CONSIDERATION OF FACT AND CIRCUMSTANCE S AS ENUMERATED, THE BENCH DEEM IT FIT TO SET-ASIDE THE FINDINGS OF LD. CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION AFTER AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E. THE LD. CIT(A) IS DIRECTED TO RECONSIDER THE FACTUAL MATRIX IN TERMS OF THE CITED DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL AS RELIED UP ON BY LD. AR AS WELL AS ALSO CONSIDER THE EVENTS ARISING OUT OF ORDERS P ASSED BY SEBI IN CASE OF THIS SCRIP. ALL THE ISSUES ARE KEPT OPEN. THE GR OUNDS THUS RAISED STANDS ALLOWED FOR STATISTICAL PURPOSES. IN ONE OF THE GROUNDS, THE ASSESSEE HAS ASSAILED THE TAX COMPUTATIONS MADE BY LD. AO. FOR THE SAME, IT WOULD BE SUFFICIENT ON OUR PART TO DIRECT LOWER AUTHORITIES TO APPLY CORRECT RATES OF TAX TO THE INCOME FINALLY COMPUTED , AS APPLICABLE. 10. THE APPEAL STANDS ALLOWED FOR STATISTICAL PURPO SES. ORDER PRONOUNCED ON 12 TH JULY, 2021 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 9 MUMBAI; DATED : 12/07/2021 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. '%'/ THE APPELLANT 2. ()%'/ THE RESPONDENT 3. !! (') / THE CIT(A) 4. !! / CIT CONCERNED 5. Z[(\, !'\, / DR, ITAT, M UMBAI 6. [_ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.