Shri. Uttamchand Khatri, Bengaluru V. Income Tax Officer, Ward-5(2)(2), Bengaluru

ITA 823/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4189 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 16-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VENKATESH
• Keywords: Income from undisclosed sources
• Section: 68; 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT ITA NO. 823/BANG/2018 ASSESSMENT YEAR : 2014 - 15 SHRI UTTAMCHAND KHATRI, NO.87, 2 ND FLOOR, MALAKALA MARKET, C.T. STREET, BENGALURU 560 002. PAN: AOCPK 5774P VS. THE INCOME TAX OFFICER, WARD 5(2)(2), BENGALURU. APP ELLANT RESPONDENT APP ELLANT BY : SHRI T. SRINIVASA, CA RESPONDENT BY : SHRI S. VENKATESH, JDIT DATE OF HEARING : 24 . 01.2019 DATE OF PRONOUNCEMENT : 15 . 0 2 . 201 9 O R D E R THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDE R DATED 22.12.2017 OF CIT(APPEALS)-V, BENGALURU RELATING TO ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS AN INDIVIDUAL. FOR THE ASSESSMEN T YEAR 2014-15, THE ASSESSEE FILED RETURN OF INCOME IN WHICH HE DEC LARED A LONG TERM CAPITAL GAIN ON SALE OF EQUITY SHARES OF RS.37,38,583. THE DETAILS OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE WAS AS FOLLOWS:- ITA NO. 823/BANG/2018 PAGE 2 OF 8 LTCG ON SALE OF SHARES SCRIP: KAIL ASH AUTO BUY SELL CAPITAL GAIN DATE OF PURCHASE / SALE QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT 07.06.2012 100000 1 100000 20.09.2013 25000 38.90 972500 04.10.2013 24800 38.10 944880 09.10.2013 12700 38 482600 24.10.2013 2000 39.10 977500 06.11.2013 -I-- 12500 39 487500 OTHER E XPE NSES 26397 100000* 100000 100000 38,38,583 37,38,583 2. *CAREFUL PROJECTS ADVISORY LIMITED WAS AMALGAMATED WITH KAILASH AUTO FINANCE LTD. 3. THE ASSESSING OFFICER (AO) WAS OF THE VIEW THAT THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE WHICH WAS CLA IMED AS EXEMPT U/S. 10(28) OF THE INCOME-TAX ACT, 1961 ['THE ACT'] CANN OT BE ALLOWED AND THE SAID SUM IS LIABLE TO BE TAXED U/S. 68 OF THE ACT F OR THE FOLLOWING REASONS:- ' 10. FINDINGS AND CONCLUSION 10.1 THE SUBMISSIONS MADE BY THE ASSESSEE AND REPLY TO SH6W CAUSE IS CONSIDERED. THE FACTS OF THE CASE, INVESTI GATIONS MADE BY VARIOUS DIRECTORATES, STATEMENTS RECORDED DURING TH E ASSESSMENT PROCEEDINGS ARE CONSIDERED. FROM THE DISCUSSION IN THE PRECEDING PARAS IT IS CONCLUDED THAT LONG TERM CAPITAL GAINS BOOKED BY ASSESSEE IN HIS BOOKS WERE PRE-ARRANGED METHOD TO E VADE TAXES AND LAUNDER MONEY. FOLLOWING ARE THE FINDINGS AND T HE REASONS WHICH SUBSTANTIATES THE FINDINGS. A. MODE OF ACQUISITION OF THE SHARES : THE ASSESSEE HAS PURCHASED 100000 SHARES OF CAREFUL PROJECTS ADVISOR Y LTD. FOR RS 1,00,000/-. THE CAREFUL PROJECTS ADVISORY LT D WAS AMALGAMATION WITH KAILASH AUTO LIMITED AND THE ASSE SSEE WAS ALLOTTED THE SAME AMOUNT OF SHARES I.E. 1,00,00 0 SHARES OF KAILASH AUTO LIMITED. ITA NO. 823/BANG/2018 PAGE 3 OF 8 B. SALE OF SHARES AND UNUSUAL RISE IN THE PRICE : FURTHER THE ASSESSEE HAS SOLD THE ENTIRE 1,00,000 SHARES FOR TH E SALE CONSIDERATION OF RS. 38,38,583/-, THUS RESULTING TH E LONG TERM CAPITAL GAIN OF RS 37,38,583/-, WHICH IS APPROX. 38 TIMES THE INCREASE OF THE COST PRICE, AND AS DISCUSSED THE RI SE IN SHARE PRICES IS NOT HOLDING TO ANY COMMERCIAL PRINCIPLES AND MARKET FACTORS. C. FINDINGS OF INVESTIGATION WING : THE FINDINGS OF THE DIRECTORATE OF INVESTIGATION OF MUMBAI AND KOLKATA AS DISCUSSED ABOVE HAVE PROVED THAT ASSOCIATED BROKERS , ENTRY OPERATORS AND THE ASSESSEE HAD WORKED OUT AN ARRANG EMENT IN WHICH THE SHARES WERE ACQUIRED BY THE ASSESSEE, THE SHARE PRICES WERE RIGGED AND THEN WITH THE HELP OF ENTRY OPERATORS BY ROUTING THE CASH, SHARES WERE SOLD AT HIGH PRICE TO ARRIVE AT TAX FREE CAPITAL GAINS. D. ANALYSIS OF TRANSACTIONS : FACTS REVEALED THAT SUCH TRADING TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE NOT BEEN EFFECTED, FOR COMMERCIAL PURPOSE BUT TO CREATE ARTI FICIAL GAINS, WITH A VIEW TO EVADE TAXES - I. TRANSACTIONS OF SHARES WERE NOT GOVERNED BY MARK ET FACTORS PREVALENT AT RELEVANT TIME IN SUCH TRADE, B UT SAME WERE PRODUCT OF DESIGN AND MUTUAL CONNIVANCE ON PAR T OF ASSESSEE AND THE OPERATORS. II. THE ASSESSEE RESORTED TO A PRECONCEIVED SCHEME TO PROCURE LONG-TERM CAPITAL GAINS BY WAY OF PRICE DIFFERENCE IN SHARE TRANSACTIONS NOT SUPPORTED BY M ARKET FACTORS. III. CUMULATIVE EVENTS IN SUCH TRANSACTIONS OF SHAR ES REVEALED THAT SAME WERE DEVOID OF ANY COMMERCIAL NATURE AND FELL IN REALM OF NOT BEING BONA FIDE AND, HENCE, IMPUGN ED LONG TERM CAPITAL GAIN IS NOT ALLOWABLE. F. IGNORANCE OF THE ASSESEE ABOUT SHARES AND PENNY STO CK COMPANIES : ASSESSEE HAS FAILED TO SHOW OF HAVING ANY KNOWLEDGE ABOUT THE SHARES TRADED AND HAVING ANY KNOWLEDGE ABOUT THE FUNDAMENTALS OF THE PENNY STOCK COMPANIES. ITA NO. 823/BANG/2018 PAGE 4 OF 8 G. FINANCIAL ANALYSIS OF THE PENNY STOCK COMPANIES : THE NETWORTH OF THE PENNY STOCK COMPANY IS NEGLIGIBLE. EVEN THOUGH THE NETWORTH OF THE COMPANY AND THE BUSINESS ACTIVITY OF THE COMPANY IS NEGLIGIBLE THE SHARE PRICES HAVE BEEN ARTIFICIALLY RIGGED TO UNUSUAL HIGH. H. CASH TRAIL IN THE ACCOUNTS OF THE ENTRY PROVIDERS : THE INVESTIGATIONS IN THE FUND FLOW ANALYSED IN THE ACC OUNTS OF THE ENTRY PROVIDERS HAVE ESTABLISHED THAT THE CASH HAS BEEN ROUTED FROM VARIOUS ACCOUNTS TO PROVIDE ACCOMODATIO NS TO ASSESSEE. I. ARRANGED TRANSACTIONS : THE TRANSACTIONS ENTERED BY THE ASSESSEE INVOLVE THE SERIES OF PRECONCEIVED STEPS, THE PERFORMANCE OF EACH OF WHICH IS DEPENDING ON THE OT HERS BEING CARRIED OUT. THE TRUE NATURE OF SUCH SHARE TR ANSACTIONS LACKED COMMERCIAL CONTENTS, BEING ARTIFICIALLY STRU CTURED TRANSACTIONS, ENTERED INTO WITH THE SOLE INTENT, TO EVADE TAXES. 10.2 THE FACTS AND CIRCUMSTANCES OF THE CASE, AS RECORDED ABOVE, CLEARLY SUGGEST THAT THE REVENUE CANNOT TAKE OR ACCEPT SUCH MAKE-BELIEVE TRANSACTIONS, AS PRESENTED BY THE ASSE SSEE. TRUTH OR GENUINENESS OF SUCH TRANSACTIONS MUST PREVAIL OVER THE SMOKE SCREEN, CREATED BY WAY OF PRE-MEDITATED SERIES OF S TEPS TAKEN BY THE ASSESSEE, WITH AWN VIEW TO IMPARTING A COLOUR O F GENUINENESS AND CHARACTER OF COMMERCIAL NATURE, SUCH SHARE TRAN SACTIONS. NEEDLESS TO SAY THAT ONE HAS TO LOOK AT THE WHOLE T RANSACTIONS AND A SERIES OF STEPS TAKEN TO ACCOMPLISH SUCH SHARE TR ANSACTIONS, IN AN INTEGRATED MANNER, WITH A VIEW TO ASCERTAINING T HE TRUE NATURE AND CHARACTER OF SUCH PURCHASE AND SALE OF SHARES. 10.3 THUS CONSIDERING THE FINDINGS OF THE SEARCH/S URVEY, INQUIRIES CONDUCTED IN THE CASE OF ASSESSEE, BROKER S, OPERATORS AND THE ENTRY PROVIDERS AND THE NATURE OF TRANSACTION E NTERED INTO BY THE ASSESSEE THE LTCG OF RS 37,38,583/- CLAIMED EXE MPT U/S 10(38) OF THE ACT BY THE ASSESSEE CAN NOT BE ALLOWE D AND THE AMOUNT OF RS 38,38,583/- RECEIVED BACK AS SALES PRO CEEDS ON SALE OF SHARES IS REQUIRED TO ADDED BACK TOWARDS HIS TAX ABLE INCOME UNDER SECTION 68 OF THE ACT. PENALTY PROCEEDING U/S 271(1)(C) IS INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME WITH A VIEW TO CONCEALMENT OF INCOME. ITA NO. 823/BANG/2018 PAGE 5 OF 8 4. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ACTION OF THE AO. 5. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE THE TRIBUNAL:- 1. IN THE FACTS AND CIRCUMSTANCE OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ORDER OF THE LEARNED ASSES SING OFFICER IS HIGHLY UNJUST ARBITRARY AND BAD IN LAW. 2. IN THE FACTS AND CIRCUMSTANCE OF THE CASE, THE L EARNED COMMISSIONER OUGHT TO HAVE APPRECIATED THAT SO FOR THE APPELLANT IS CONCERNED, HE HAD ACTED BONA FIDE AND IN FULL CO NFORMITY WITH LAW AND THAT ALL TRANSACTIONS HAD BEEN ENTERED INTO WITH REPUTED BROKERS AND THROUGH BANKING CHANNEL AND FURTHER THA T NO CASH PAYMENTS WERE INVOLVED IN THE TRANSACTION. 3. IN THE FACTS AND CIRCUMSTANCE OF THE CASE ,THE L EARNED COMMISSIONER OUGHT TO HAVE APPRECIATED THE LEARNED ASSESSING OFFICER HAD DRAWN ADVERSE INFERENCE, BASED ON ASSUM PTIONS AND PRESUMPTIONS MERELY BASED ON THE REPORTED INFORMATI ON RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT , WIT HOUT AFFORDING AN OPPORTUNITY TO THE APPELLANT COUNTER/ CLARIFY / CROSS EXAMINE THE CONCERNED PERSONS AS REQUIRED UNDER LAW HAS LAI D DOWN HON'BLE SUPREME COURT IN THE CASE OF M/S ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE,KOLKATA-II. 4. IN THE FACTS AND CIRCUMSTANCE OF THE CASE, LEARN ED COMMISSIONER OUGHT TO HAVE HELD THE INCOME EARNED B Y THE APPELLANT WERE IN THE NATURE OF LTCG AND WHICH WERE EXEMPT IN TERM OF SECTION 10(38) OF THE INCOME TAX ACT 1961. 5. IN THE FACTS AND CIRCUMSTANCE IN THE CASE, THE L EARNED COMMISSIONER IS NOT JUSTIFIED IN NOT TAKING INTO CO NSIDERATION THE WRITTEN ARGUMENTS DATED14.12.2017 SUBMITTED BY THE APPELLANT 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OUGHT TO HAVE FOLLOWED THE DECISIONS I N THE CASE OF CIT VS MUKESH R. MAROLIA BOMBAY HIGH COURT; CIT VS SHAM ITA NO. 823/BANG/2018 PAGE 6 OF 8 R.PAWAR BOMBAY HIGH COURT AND CIT VS ARUN KUMAR AGA RWAL, JHARKHAND HIGH COURT, CITED BY THE APPELLANT, IN PR EFERENCE TO THE DECISION IN THE CASE OF SANJAY BIMALCHAND, FOLL OWING THE WELL SETTLED PRINCIPLES OF LAW AS LAID DOWN BY THE HON'B LE SUPREME COURT IN THE CASE OF CIT VS VEGETABLE PRODUCTS LTD AS ALSO THE DECISION OF THE HON'BLE HIGH COURT OF MUMBAI IN THE CASE OF SIEMENS INDIA LTD VS K. SUBRAMANYAM ITO, IN VIEW OF THE CONFLICTING VIEWS BETWEEN TWO NON-JURISDICTIONAL HI GH COURTS, AS RELIED UPON BY THE APPELLANT. 7. FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS T HAT MAY BE URGED WITH KIND PERMISSION, APPELLANT HUMBLY PRAYS THAT THE HON'BLE TRIBUNAL MAY KINDLY BE PLEASED TO ALLOW THE APPEAL IN THE INTEREST OF JUSTICE. 6. DURING THE COURSE OF HEARING, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT ON SIMILAR FACTS AND CIRCUMSTANCES, THE MATTER FOR CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE ITAT, KOLKA TA BENCH IN ITS ORDER IN ITA NO. 2394/KOL/2017 IN THE CASE OF PRAKASH CHAND BUTORIA. IT WAS SUBMITTED THAT IN THE CITED CASE (SUPRA) ALSO, THE ASSESSEE, AN INDIVIDUAL, FILED HIS RETURN OF INCOME CLAIMING INCOME ON SALE OF SHARES AS EXEMPT U/S 10(38) OF THE ACT. THE ASSESSING OFFICER (AO) TREA TED THE RECEIPT OF SALE CONSIDERATION AS UNACCOUNTED INCOME AND MADE AN ADD ITION U/S 68 OF THE ACT. ON APPEAL, THE CIT(A) UPHELD THE AOS ORDER. HOWEVER, ON FURTHER APPEAL, THE ITAT, KOLKATA BENCH ALLOWED THE ASSESSE ES APPEAL OBSERVING THAT THE ADDITION WAS UNSUSTAINABLE SINCE THE AO MA DE THE ADDITION IN A ROUTINE AND MECHANIZED MANNER, MERELY ON SUSPICIONS BASED ON REPORT OF ENQUIRIES MADE BY THE INVESTIGATION DIRECTORATE OF DIT, KOLKATA, WITHOUT BRINGING THE SAME ON RECORD OR CONFRONTING THE ASSE SSEE WITH, OR, SUPPLYING THE ASSESSEE COPIES OF THE DOCUMENTS RELI ED UPON FOR MAKING THE ADDITION AND PROVIDING HIM OPPORTUNITIES FOR REBUTT AL. IT IS PRAYED THAT IN VIEW OF THE ABOVE, THE ORDERS OF THE AUTHORITIES BE LOW BE SET ASIDE AND THE ASSESSEES APPEAL BE ALLOWED. ITA NO. 823/BANG/2018 PAGE 7 OF 8 7. PER CONTRA , THE LEARNED DR FOR REVENUE SUBMITTED THAT ON SIMI LAR FACTS AND CIRCUMSTANCES AS IN THE CASE ON HAND, ISS UE FOR CONSIDERATION IS COVERED BY THE DECISIONS OF THE BENGALURU ITAT IN T HE CASES OF ARVIND KUMAR MOOLCHAND IN ITA NO.509/BANG/2017 AND PUKHRAJ HASMUKHLAL IN ITA NO.1927/BANG/2017 WHEREIN THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO, HAVING OBSERVED THAT THE ADDITIONS WERE MADE BASED ON REPORTS OF THE INVESTIGATION DIRECTORATE AT KOLKATA AND STATEMENTS OF VARIOUS PERSONS WITHOUT CONFRONTING, OR, MAKING THEM AVAILA BLE TO THE ASSESSEE FOR REBUTTAL. IN THOSE CASES, THE TRIBUNAL RESTORE D THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO CONFRONT THE ASSESSEE WITH THE REPORTS / DOCUMENTS / STATEMENTS PROPOSED TO BE USED AGAINST THE ASSESSEE, ALLOW REBUTTAL THEREOF AND CROSS-EXAMINATION OF PARTIES O N WHOSE TESTIMONY IS PROPOSED TO BE RELIED UPON AND THE MATTER BE ADJUDI CATED AFRESH AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEIN G HEARD AND TO ALSO FILE DETAILS / SUBMISSIONS IN THIS REGARD. 8. IN THE REJOINDER, THE LD.AR FOR THE ASSESSEE DID NOT DISPUTE THE PROPOSITION PUT FORTH BY THE LD. DR FOR RESTORING T HIS ISSUE TO THE FILE OF THE AO FOR DE NOVO ADJUDICATION. 9. WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREF ULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL DECI SIONS CITED AND THE ORDERS OF THE AUTHORITIES BELOW. TAKING INTO CONSIDERATIO N THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE ASSESSEE SPECIFI CALLY REQUESTED FOR CROSS-EXAMINATION OF THE DEPONENTS WHOSE STATEMENTS WERE THE BASIS OF ADDITION BY THE AO AND ALSO THE REPORT OF THE INVES TIGATION DIRECTORATE, KOLKATA FOR REBUTTAL; FROM THE JUDICIAL DECISIONS C ITED, WE FIND THAT THE ISSUE FOR CONSIDERATION IS SQUARELY COVERED BY THE ORDERS OF THE BENGALURU ITAT IN THE CASES OF ARVIND KUMAR MOOLCHAND (SUPRA) AND PUKHRAJ HASMUKHLAL (SUPRA). FOLLOWING THE AFORESAID ORDERS (SUPRA), W E SET ASIDE THE ORDERS OF THE AO AND RESTORE THE MATTER OF TREATMENT OF PROFI T DECLARED ON SALE OF ITA NO. 823/BANG/2018 PAGE 8 OF 8 SHARES, CLAIMED AS EXEMPT U/S 10(38) OF THE ACT, TO THE FILE OF THE AO TO RE- ADJUDICATE THE ISSUE AFRESH; AFTER MAKING AVAILABLE TO THE ASSESSEE FOR REBUTTAL ALL DOCUMENTS; INCLUDING STATEMENTS, INVES TIGATION REPORTS, ETC., RELIED UPON BY REVENUE FOR MAKING THE ADDITIONS/DIS ALLOWANCES AND PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE FOR CROSS-EXAMINATION OF PERSONS WHOSE STATEMENTS ARE BEING RELIED UPON. IT IS ACCORDINGLY ORDERED. CONSEQUENTLY, GROUND NO. 3 IS DISPOSED OF AS ABOVE. 10. IN VIEW OF THE ABOVE, THE OTHER GROUNDS RAISED ON MERITS ARE RENDERED ACADEMIC AND THEREFORE NOT REQUIRED TO BE ADJUDICATED AT THIS JUNCTURE. 11. IN THE RESULT, THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2014-15 IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF FEBRUARY, 2019. SD/- ( N.V. V ASUDEVAN ) VICE PRESIDENT BANGALORE, DATED, THE 15 TH FEBRUARY, 2019. / D ESAI S MURTHY / COPY TO: 1 . APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.