RAMESH J. THAKKAR, MUMBAI V. INCOME TAX OFFICER 26(3)(6), MUMBAI

ITA 823/MUM/2022

AI Insights

The case revolves around the appeal by Ramesh J. Thakkar against the order of the National Faceless Appeal Centre (NFAC), which confirmed the addition of Rs. 4,53,849/- to the assessee's income for the Assessment Year 2012-13. This addition was made on the grounds that the long-term capital gains claimed by the assessee from the sale of shares in a penny stock were bogus. The Assessing Officer had re-opened the assessee's case under section 147 of the Income Tax Act, following a search and seizure operation related to a syndicate involved in manipulating share prices to provide bogus tax entries. The Tribunal, after examining the facts and circumstances, concluded that there was insufficient evidence to substantiate the claim that the assessee's transactions were not genuine.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 300127 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 31-08-2022
• Assessment Year: misc
• Appeal Filed On: 28-01-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Wrong claim; Reason to believe
• Section: 147; 68; 271(1)(c); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM आयकरअपीलसं./ I.T.A. No. 823/Mum/2022 (निर्धारणवर्ा / Assessment Year: 2012-13) Ramesh J. Thakkar 51, Moti Sagar,3 rd Road Floor, Ganesh Gawde Road, Mulund(W), Mumbai- 400080 बिधम/ Vs. Income Tax Officer 26(3)(6) Mumbai Aayakar Bhavan, M.K. Road, Church Gate, Mumbai-400020 स्थायीलेखासं./जीआइआरसं./PAN No. AABPT4367L (अपीलाथी/Appellant) : (प्रत्यथी / Respondent) अपीलाथीकीओरसे/ Appellant by : Shri. Mehul Shah प्रत्यथीकीओरसे/Respondent by : Ms. Neeta Jeph सुनवाईकीतारीख/ Date of Hearing : 01.09.2022 घोषणाकीतारीख / Date of Pronouncement : 30.11.2022 आदेश / O R D E R Per Amit Shukla, Judicial Member: The aforesaid appeal has been filed by the assessee against the order dated 17.03.2021, passed by National Faceless Appeal Centre (NFAC), Delhi for the quantum of assessment passed u/s 147/143(3), for the AY 2012-13. 2 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR 2. In the various ground of Appeal the Assessee had challenged validity of re-opening u/s 147 and on merits Assessee has challenged addition of Rs.4,53,849/- on account of treating the sale of share as bogus and making the u/s 68. 3. At the outset the Appeal of the Assessee is delayed by 345 days. Before us, the Ld. Counsel submitted that, due to Covid pandemic, the Supreme Court vide miscellaneous application No. 21 of 2022 has allowed all the appeals which were required to be filed during the period 15.03.2020-28.02.2022 to be excluded while considering the condonation of delay. Accordingly, the Appeal of the Assessee in filing of the Appeal is condom as it falls within the same period. 4. Before us, the Ld. Counsel had only argued the appeal on merits, that is, addition of Rs. 4,53,849/- on account of sale of shares claimed as long term capital gain which has been added by the Assessing Officer u/s. 68. 5. The facts in brief are that, the Assessee is an individual to has been regular investor in the stock market from last 50 years and has been regularly offering income from dividend, short term capital gain, long term capital gain from the shares and also income from 3 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR the other sources. During the year, the Assessee had traded in more than hundreds of scrip and has declared long term capital gain of Rs. 2,35,96,048/-, dividend income of Rs. 33,46,959/-, taxable short term capital gain of Rs. 3,17,126 and taxable long term capital gain of Rs.4,50,233/-. 6. The return of income filed on 21.02.2013 was duly accepted, however, Assessee case of re-opened u/s. 147 on the following reason recorded. "In this case, return of income for A.Y 2012-13 was filed on 21 03.2013 declaring total income at Rs. 11,41,080/- by assessee. 2. A search & seizure action were carried out on Shri Naresh Jain and his Associates by the Directorate of Income tax (Inv)-2, Mumbal on 19.03.2019 The search action covered the syndicate of persons who were acting in collusion and executing managed transactions on the stock exchange thus generating bogus long term capital gains/bogus short term capital loss/bogus business loss entries for various beneficiaries. This search action unraveled the workings of the syndicate and brought on record the make believe nature of paper work that is manufactured in order to show the arranged transactions as legitimate market transactions. 3. The syndicate seeks to lend credence to the bogus claims of the assessee by executing trades on exchange and colouring a pre- arranged transaction as a random market transaction. The basic 4 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR premise in this regard is that there is no liquidity in these stocks. The equity in these scrips is closely held in connivance with promoters and through various proxies and any market transaction is on account of pre- arranged transactions. M/s. Divine Multimedia (India) Ltd. (Scrip code - 523810) is one of such penny scrips. 4. During the course of search action, Shri Naresh Jain has admitted on oath in his statement recorded u/s.132(4) that he has with the help of various people, manipulated the share prices of various scrips in order to provide bogus entries of Long term capital gain, short term capital loss and business loss. 5. On examination of Trade Data thereof, it is found that the assessee, Shri Ramesh Jamnadas Thakkar having PAN AABPT4367L who is assessed in this charge is one of the beneficiaries who has sold shares of Rs. 7,95,907/- in the scrip of M/s. Divine Multimedia (India) Ltd. during the FY 2011-12 relevant to A.Y 2012-13. 6. Since the assessee has traded in penny stock scrip, this amount of Rs.7,95,907/- should be disallowed and added back to the total income of the assessee u/s. 68 of the IT Act on account of unexplained cash credit. 7. Hence, in view of the above, I have reason to believe that income chargeable to tax to the tune of Rs.7,95,907/- has escaped assessment within the meaning of Explanation 2(b) to Section 147 of the I. T. Act, 1961. 5 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR 7. Since, one of the scrips dealt by the Assessee was in M/s Divine Multimedia (India) Ltd, which as per the aforesaid information was “Penny Stock”, therefore, the Assessing Officer has re-opened the case and as treated long term capital gain of Rs.4,53,849/- in transaction of the said scrips as bogus. The sole reason given by the Assessing Officer which as under: “4.4 The assessee's submission was carefully considered, however it was not tenable. During the course of search action, Shri Naresh Jain has admitted on oath in his statement recorded u/s.132(4) that he has with the help of various people, manipulated the share prices of various scrips in order to provide bogus entries of Long term capital gain, short term capital loss and business loss. As per the information received from the investigation wing, the assessee had earned Long Term Capital Gain through the transaction in penny scrip of M/s. Divine Multimedia (India) Ltd. and claimed exemption of Rs. 4,53,849 u/s 10(38) of the IT Act. The above transaction was also confirmed by the BSE. Since transaction is made in penny scrip, exemption u/s 10(38) of the IT Act is not allowed and same income is added back to the total income of the assessee u/s 68 under the head income from other sources. 6 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR Penalty proceedings u/s 271(1)(c) r.w.s 274 of the IT Act, 1961 is initiated separately for famishing inaccurate particulars and concealment of income.” 8. Ld. first Appellate authority has simply confirmed the order of the Assessing Officer in the following manner. “The appellant in the appellate proceedings have not filed any submission and details as per the final notice dated 22.02.2021 calling for details on 02.03.2021 The AO has made addition based on the information received from a Search Action in the case of Shri Naresh Jain and his associates by the Directorate of Income Tax (Inv)- 2, Mumbai on 19.03.2019. The appellant has traded in a Penny Stock M/s. Divine Multimedia (India) Ltd. In the appellate proceedings the appellant has failed to prove that the transaction is genuine and not arranged. The addition by the AO is hereby justified. The addition of Rs.4,53,849/- is hereby confirmed.” 9. After hearing both the parties and on perusal of the material placed on record, I find that, firstly Assessee was regular investor in shares for last 50 years and he has invested in more than hundreds of scrips during the year and has earned huge long term capital 7 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR gain and short term capital gain as mentioned above. Out of long term capital gain of Rs. 2,35,96,048/-, a small amount of Rs. 4,53,849/- has been added u/s 68, solely for the reason of information received from the search action in case of Shri. Naresh Jain. Nothing has been brought on record as to whether, any material on information was found that Assessee was beneficiary of some kind of accommodation entry or Assessee’s name has been figured in any material or inquiry. Nowhere the Assessing Officer has discussed the facts and the documents which were furnished by the Assessee. 10. Here in this case, the Assessee bought these shares in financial year 2006-07 that is in Nov 2006 and these shares have been sold almost after 5 years, that is, in the month of June 2011, at a value of Rs. 30.33 & 33.92 per share in the “Bombay Stock Exchange”. The Assessee had purchased 15,000/- shares for Rs. 37,140/- and has sold entire shares at Rs.4,90,989/- thereby earning long term capital gain of Rs. 4,53,849/- in the span of 5 years. 8 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR 11. Another important fact is that, neither the scrip was under the scanner of “SEBI” nor there was any ban on the trading of such shares. It is not one of those case were Assessee has bought off market purchase of one scrip at very low price and have sold after one year at some exorbitant price. If the Assessee has been regular investor has invested more than hundreds of scrips over the year and at regularly showing long term capital gain, it cannot be said that assessee has entered for some accommodation entry for long term capital gain by keeping the share for 5 years Assessee to earn bogus income of Rs.4,43,849/-. At least, there has to be some material or information that Assessee was found to be beneficiary of some clandestine accommodation entry on anything adverse has been found during the course of inquiry. Simply because in some other search one broker has given a statement at he has provided some accommodation entry on the Divine Multimedia (India) Ltd, it cannot be held that all across the country the persons who have bought the shares which is still traded in “Bombay Stock Exchange” and has never been banned by “SEBI”, all those peoples are beneficiary of some accommodation entry or the transaction is bogus. On these facts, I do not find any reason to disbelieve the 9 I . T . A . N o . 823/ M u m / 2 0 2 2 RAMESH J. THAKKAR transaction and treat long term capital gain as income from other sources. Accordingly, the addition of Rs. 4,53,849/- is deleted. 12. In the result Appeal of the Assessee is allowed. Orders pronounced in the open court on 29 th November, 2022. Sd/- (Amit Shukla) Judicial Member मुंबई Mumbai;ददनांक Dated : 29.11.2022 Mrs.Urmila आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. दवभागीयप्रदतदनदध, आयकरअपीलीयअदधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER, .उि/सहधयकिंजीकधर (Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai