MANISH HEDA, Ajmer V. ITO, Ajmer

ITA 792/JPR/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5189 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 16-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Keywords: Capital asset; Principle of natural justice; Accommodation entries; Sham transactions
• Section: 115JB

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 792/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2005-06 SHRI MANISH HEDA 54, MOHAN KUNJ, NAGINA BAGH, AJMER CUKE VS. THE ITO WARD- 1(3), AJMER LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: ABHPM2587 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI SANJEEV JAIN, CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A. VERMA, ADDL CIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28/06/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29 /06/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), AJMER DATED 26-08-2015 FOR THE ASSESSMENT Y EAR 2005-06 RAISING THEREIN FOLLOWING GROUNDS:- (I) THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS OF THE CASE BY TREATING THE INCOME OF RS. 5,11,286/- F ROM SALE OF SHARES, HELD FOR INVESTMENT PURPOSES, AS INCOME FRO M OTHER SOURCES INSTEAD OF INCOME FROM CAPITAL GAINS. (II) THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE OF DISALLOWING EXEMPTION U/S 54EC OF THE A CT ON ITA NO. 792/JP/2015 SHRI MANISH HEDA VS. ITO, WARD- 1(3), AJMER . 2 INVESTMENT OF RS. 5,20,000/- REC BONDS BEING ELIGIB LE BONDS. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED THE RETURN OF INCOME ON 27-06-2005 DECLARING TOTAL INCOME OF RS. 1,06,156/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT. THE AO OBSERVE D THAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN OF RS. 5,11,286 .87 ON SALE OF SHARES AND THE ENTIRE CAPITAL GAIN WAS CLAIMED AS EXEMPT A S THE ASSESSEE HAD CLAIMED DEDUCTION U/S 54EC (3)(B) OF THE ACT AS TH E ASSESSEE HAD INVESTED SALE PROCEEDS ON CAPITAL GAIN IN RURAL ELE CTRIC BONDS AMOUNTING TO RS. 5,20,000/-. THE AO CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE AND DETAILS / DOCUMENTS PRODUCED ON DEMAND BEFORE H IM HELD THAT THE INCOME OF RS. 5,11,286/- SHOWN BY THE ASSESSEE AS L ONG TERM CAPITAL GAIN IS A SHAM TRANSACTION AND THUS FURTHER OBSERVED TH AT IN REALITY THE ASSESSEE HAD NOT EARNED ANY LONG TERM CAPITAL GAIN. THE AO O BSERVED THAT THE ASSESSEE HAD ENTERED IN THIS TRANSACTION JUST TO IN TRODUCE HIS OWN UNDISCLOSED INCOME TO BUILD UP CAPITAL. THEREFORE, THE WHOLE LONG TERM CAPITAL GAIN OF RS. 5,11,286/- WAS TREATED AS INCOM E OF THE ASSESSEE FROM UNDISCLOSED SOURCES AND ACCORDINGLY THE AO ADDED BA CK TO THE DECLARED INCOME OF THE ASSESSEE. THE AO OBSERVED THAT SINCE THERE WAS NO GENUINE TRANSACTION OF PURCHASES / SALE OF SHARES AND HENCE NO QUESTION OF LONG ITA NO. 792/JP/2015 SHRI MANISH HEDA VS. ITO, WARD- 1(3), AJMER . 3 TERM CAPITAL GAIN ARISES. THEREFORE, THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 54EC(3)(B) OF THE ACT IS NOT ALLOWABLE AND THE SAME WAS REJECTED BY THE AO. 2.2 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION OF RS. 5,11,286 /- A S TO SHARE TRANSACTIONS AND ALSO DISALLOWED THE EXEMPTION U/S 54EC BY FOLL OWING OBSERVATIONS. 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, STATEMENT OF FACTS, GROUNDS APPEAL AND WRITTEN SUBM ISSION CAREFULLY. IT IS SEEN THAT THE AO HAS DISCUSSED IN DETAIL IN THE ASSESSMENT ORDER THE FACTS AND CIRCUMSTANCES ON THE BASIS OF WHICH HE HAS COME TO THE CONCLUSION THAT THE LONG TERM CA PITAL GAIN OF RS. 5,11,286/- SHOWN BY THE APPELLANT IS NOT A GENU INE CAPITAL GAIN. THESE FACTS AND CIRCUMSTANCES ARE NOT BEING REPEATE D IN THE ORDER. THE APPELLANT COULD NOT CONTRADICT THE STATEMENT GI VEN BY SHRI MUKESH M CHOKSI, DIRECTOR OF MAHASAGAR SECURITIES ( P) LTD., THE BROKER THROUGH WHICH THE APPELLANT IS CLAIMED TO HA VE CARRIED OUT THE TRANSACTION. I AM OF THE CONSIDERED VIEW THE AO WAS FULLY JUSTIFIED IN COMING TO THE CONCLUSION THAT THE CAPI TAL GAIN OF RS. 5,11,286/- SHOWN BY THE APPELLANT WAS NOT A GENUINE LONG TERM CAPITAL GAIN. THE DECISION RELIED UPON BY THE APPEL LANT HAVE BEEN GIVEN ON DIFFERENT SET OF FACTS AND ARE NOT APPLICA BLE TO THE CASE UNDER CONSIDERATION. HENCE, THE ADDITION MADE BY TH E AO ON TIS GROUND IS HEREBY CONFIRMED. 5.2 AS WHILE DECIDING THE GROUND NO. 1 ABOVE, IT HAS BEEN HELD THAT THE LONG TERM CAPITAL GAIN OF RS . 5,11,286/- SHOWN BY THE APPELLANT IS NOT A GENUINE LONG TERM C APITAL GAIN. THEREFORE, THE GROUND OF APPEAL OF THE APPELLANT IS ALSO DISMISSED AS DEDUCTION U/S 54EC CAN BE ALLOWED ON CAPITAL GAI N ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET. IN NUT SHELL, THE LD. CIT(A) DISMISSED THE APPEAL O F THE ASSESSEE. ITA NO. 792/JP/2015 SHRI MANISH HEDA VS. ITO, WARD- 1(3), AJMER . 4 2.3 NOW THE ASSESSEE IS BEFORE ME PRAYING THAT THE LOWER AUTHORITIES HAVE NOT ALLOWED THE LONG TERM CAPITAL GAIN OF RS. 5,11,286/- AND ALSO NOT ALLOWED THE EXEMPTION U/S 54EC OF THE ACT ON AN INVESTMENT OF RS. 5,20,000/- ON REC BONDS. THE LD. AR OF THE ASSE SSEE ALSO FILED THE WRITTEN SUBMISSION TO THIS EFFECT. 2.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 2.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. I FIND THAT SIMILAR ISSUE HAS ALSO ARISEN IN THE CASES OF SMT. SUDHA CHANDAK VS. ITO (ITA NO. 983/JP/2015 A.Y . 2006-07), SMT. LAXMI NIWAS CHANDAK (ITA NO. 984/JP/2015 A.Y. 2006- 07) SHRI LAXMI NIWAS CHANDAK (HUF) (ITA NO. 985/JP/2015 A.Y.2006-0 7) AND SHRI VINEET CHANDAK (ITA NO. 986/JP/2015 A.Y. 2006-07) W HICH HAS BEEN DECIDED BY ME THROUGH CONSOLIDATED ORDER DATED 13- 06-2016 BY OBSERVING AS UNDER:- 5.3 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE REVENUE HAS TREATED THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES. THE AO HAS HELD THE TRAN SACTIONS I.E. PURCHASE AND SALE OF SHARES AS SHAM TRANSACTIONS AN D THE ASSESSEE HAS NOT EARNED ANY LONG TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE IS NOT GENUINE. THE C ONCLUSION IN THIS REGARD WAS ALSO BASED ON THE INFORMATION RECEIVED F ROM DDIT (INV.) II,UDAIPUR. THE LD. AR OF THE ASSESSEE CLAI MED THAT THE SHARES WERE PURCHASED IN PHYSICAL FORM BUT LATER ON THESE SHARES WERE DEMAT ON 15-05-2003 WITH ICICI BANK, AJMER AN D ITA NO. 792/JP/2015 SHRI MANISH HEDA VS. ITO, WARD- 1(3), AJMER . 5 SUBSEQUENTLY THESE SHARES HAD BEEN SOLD. ON THE OTH ER HAND, THE LD. DR SUBMITTED THAT FOR CLAIMING DEDUCTION U/S 10(38) OF THE ACT, THESE TRANSACTIONS ARE SUBJECT TO CHARGE OF SECURIT Y TRANSACTION TAX (FOR SHORT STT) AND THERE IS NO EVIDENCE WHETHE R THE STT HAS BEEN PAID ON THE SALE OF THESE SHARES. FOR THE SAKE OF CONVENIENCE, SECTION 10(38) IS REPRODUCED AS UNDER:- (38) ANY INCOME ARISING FROM THE TRANSFER OF A LONG -TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND WHERE (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE O R UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO. 2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES T RANSACTION TAX UNDER THAT CHAPTER : 60 [ PROVIDED THAT THE INCOME BY WAY OF LONG-TERM CAPITAL GAIN O F A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTING THE BOOK P ROFIT AND INCOME-TAX PAYABLE UNDER SECTION 115JB .] EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, EQ UITY ORIENTED FUND MEANS A FUND (I) WHERE THE INVESTIBLE FUNDS ARE INVESTED BY WAY OF EQUITY SHARES IN DOMESTIC COMPANIES TO THE EXTENT OF MORE THAN 61 [SIXTY-FIVE] PER CENT OF THE TOTAL PROCEEDS OF SUCH FUND; AND (II) WHICH HAS BEEN SET UP UNDER A SCHEME OF A MUT UAL FUND SPECIFIED UNDER CLAUSE (23D) : PROVIDED THAT THE PERCENTAGE OF EQUITY SHAREHOLDING OF THE FUND SHALL BE COMPUTED WITH REFERENCE TO THE ANNUAL AVERAGE OF TH E MONTHLY AVERAGES OF THE OPENING AND CLOSING FIGURES;] THE LD. AR OF THE ASSESSEE WAS NOT ABLE TO REPLY TH IS QUERY AND HE REQUESTED THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR SUCH VERIFICATION. HE ALSO PLEADED THAT THE ASS ESSEE HAS NOT BEEN ABLE TO CROSS EXAMINE SHRI MUKESH K CHOKSI WHOSE ST ATEMENT HAS BEEN RELIED ON BY THE REVENUE AUTHORITIES. HENCE, I N VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ISSUE IS R ESTORED TO THE FILE OF THE AO TO DECIDE IT AFRESH AS INDICATED ABOVE AN D ALSO BY PROVIDING THE OPPORTUNITY OF HEARD TO THE ASSESSEE. ACCORDINGLY, ITA NO. 792/JP/2015 SHRI MANISH HEDA VS. ITO, WARD- 1(3), AJMER . 6 THE OTHER APPEALS OF THE ASSESSEES (SUPRA) HAVING SIMILAR ISSUE ARE RESTORED TO THE FILE OF THE AO. THUS ALL THE APPEAL S OF THE ABOVE ASSESSEE'S ARE PARTLY ALLOWED FOR STATISTICAL PURPO SES. 2.5.1 FURTHER IT IS NOTED FROM THE SUBMISSION O F THE LD. AR BEFORE THE LD. CIT(A) AT PAGE 4 OF HIS ORDER AS UNDER:- (G) THE STATEMENT OF SHRI MUKESH M CHOKSI, WHICH HAS BEEN MADE THE BASIS OF THE ASSESSEE AND WHICH A LSO FORMS PART OF THE ORDER OF THE AO IS A GENERAL STAT EMENT AND NOT SPECIFICALLY RELATES TO THE ASSESSEE. THE ASSES SEE WAS NEVER ACCORDED AN OPPORTUNITY TO CROSS EXAMINE THE SAID THIRD PARTY ON THE BASIS OF WHOSE STATEMENT THE ENT IRE ASSESSMENT HAS BEEN FRAMED. CERTAIN MODUS OPERANDI WAS DESCRIBED BY SHRI MUKSH M CHOKSI AS ALLEGED TO HAVE BEEN CARRIED OUT BY HIM TO PROVIDE ACCOMMODATION ENTRIES ETC. BUT NOWHERE IT IS STATED/ PROVED THAT THE SAME WAS FOLLOWED IN THE CASE OF THE ASSESSEE ALSO. 2.5.2 CONSIDERING THE ENTIRETY OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND ALSO TO PROVIDE NATURAL JUSTICE TO THE ASSESSEE , THE ISSUE IN QUESTION IS RESTORED BACK TO THE FILE OF THE AO TO DECIDE IT AF RESH AS INDICATED ABOVE AND ALSO PROVIDE ADEQUATE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE TO CROSS EXAMINE THE THIRD PARTY TO RESOLVE THE ISSUE. THUS THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 792/JP/2015 SHRI MANISH HEDA VS. ITO, WARD- 1(3), AJMER . 7 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 29/06/201 6 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 29 /06/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI MANISH HEDA, AJMER 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 1(3), AJMER 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 792/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR