MANIBEN CHHADWA, MUMBAI V. ACIT CEN CIR 8, MUMBAI

ITA 8575/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100847 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: GOVIND ZAVERI
• Keywords: Capital asset; Search and seizure
• Section: 143(3); 54F; 153A; 68; 6

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.8575/MUM/2010 ASSESSMENT YEAR: 2003-04 SMT. MANIBEN CHHADWA, 602/B, 3 RD FLOOR, CAPTAIN HOUSE, DR. AMBEDKAR ROAD, MATURNGA (CR), MUMBAI-400019 / VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-8, MUMBAI ( !' # /ASSESSEE) ( $ / REVENUE) P.A. NO. AAACPC9095K !' # / ASSESSEE BY SHRI GOVIND ZAVERI $ / REVENUE BY SHRI N.P.SINGH CIT-DR % $& ' # ( / DATE OF HEARING : 09/07/2015 ' # ( / DATE OF ORDER: 14/08/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 14/09/2010 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, CONFIRMING THE ADDITION OF RS.25,53,800/- MADE U/S 143(3) R.W.S 153 OF THE ACT, TREATING THE LONG TERM CAPITA L GAIN ON MANIBEN CHHADWA ITA NO.8575/MUM/2010 2 SALE OF SHARES OF M/S OFFSHORE FINVEST LTD. AS UNEX PLAINED CASH CREDITS U/S 68 OF THE ACT. 2. DURING HEARING OF THIS APPEAL, SHRI GOVIND ZAVE RI, LD. COUNSEL FOR THE ASSESSEE, CLAIMED THAT THE IMPU GNED ISSUE IS COVERED, WHICH IS ON IDENTICAL FACTS, BY THE DEC ISION IN M/S JATIN CHHADWA VS ACIT (ITA NO.8573/MUM/2010) ORDER DATED 24/08/2012. THIS FACTUAL MATRIX WAS NOT CONTR OVERTED BY LD. CIT-DR, SHRI N.P. SINGH. HOWEVER, HE DEFEND ED THE ADDITION CONFIRMED BY THE LD. COMMISSIONER OF INCOM E TAX (APPEALS). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 24/0 8/2012 FOR READY REFERENCE:- 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT A SEARCH AND SEIZURE ACTION U/S. 132(1) OF THE ACT WAS CONDUCTED IN THE CASE OF M/S. SIA LIFESTYLES PVT. LTD., ITS GROUP CONCERN S, DIRECTORS AND RELATED PERSONS ON 11.4.2007. THE ASSESSEE WAS ALSO COVERED IN THIS SEARCH ACTION. NOTICE U/S. 153A WAS ISSUED AND SERVED ON THE ASSESSEE ON 31.01.2008. IN RESPONSE TO NOTICE, THE ASSESSEE FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERA TION DECLARING TOTAL INCOME AT RS.17,03,069/-. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SH OWN LONG TERM CAPITAL GAIN TO THE TUNE OF RS. 27,75,550/- ON THE PURCHASE AND SALE OF 20,000 EQUITY SHARES OF OFFSHORE-FINVES T LTD., AND MANIBEN CHHADWA ITA NO.8575/MUM/2010 3 CLAIMED EXEMPTION U/S. 54F OF THE ACT AS THE LONG T ERM CAPITAL GAIN HAVE BEEN USED FOR ACQUISITION OF RESIDENTIAL HOUSE. THE AO WAS OF THE OPINION THAT SHARES OF THE COMPANY OFFSH ORE-FINVEST LTD., ARE NOTHING BUT PENNY STOCK AND SOUGHT CLARIF ICATION FROM THE ASSESSEE AS TO WHY THE AMOUNT RECEIVED FROM THE SALE OF SUCH PENNY STOCK SHOULD NOT BE TREATED AS TAXABLE U/S. 6 8 OR AS SHORT TERM CAPITAL GAINS. THE ASSESSEE FILED A DETAILED R EPLY DT. 1.10.2009. THE AO REJECTED THE SUBMISSIONS MADE BY ASSESSEE AND WAS OF THE OPINION THAT THE TRANSACTION IN SUCH PENNY STOCK HAS RESULTED INTO A BOGUS CAPITAL GAIN AND ON THE B ASIS OF THIS BELIEF, THE AO WENT ON TO TREAT THE SALE CONSIDERAT ION AT RS. 27,75,550/- AS UNEXPLAINED U/S. 68 OF THE ACT. HOWE VER TO BE ON THE SAFER SIDE, THE AO IN ALTERNATIVE AND WITHOUT P REJUDICE TO HIS ABOVE OBSERVATION CONCLUDED THAT THE CAPITAL GAINS, IF AT ALL, IS TO BE TAXED AS SHORT TERM CAPITAL GAINS AS THE HOLDING PERIOD OF THE ASSESSEE IS LESS THAN 12 MONTHS, ACCORDINGLY, THE A O CONCLUDED THE ASSESSMENT PROCEEDINGS. 4. BEING AGGRIEVED BY THE FINDING OF THE AO, ASSESS EE CARRIED THE MATTER BEFORE THE LD. CIT(A). 5. THE ASSESSEE CHALLENGED THE VALIDITY OF THE ASSE SSMENT ORDER PASSED U/S. 143(3) R.W.S. 153A OF THE ACT AS THE AD DITIONS MADE U/S. 68 OF THE ACT WAS NOT ON THE BASIS OF EVIDENCE FOUND DURING THE COURSE OF SEARCH. THE ASSESSEE ALSO CHALLENGED THE CORRECTNESS OF THE TREATMENT OF LONG TERM CAPITAL G AIN AS UNEXPLAINED U/S. 68 OF THE ACT. 6. THE LD. CIT(A) REJECTING THE CLAIMS OF THE ASSE SSEE AND HELD THAT THE ASSESSMENT HAVE BEEN PROPERLY COMPLETED U/ S. 143(3) R.W.S. 153A OF THE ACT AND CONFIRMED THE ACTION OF THE AO. THE LD. CIT(A) ALSO REJECTED THE SUBMISSIONS/EXPLANATIO NS GIVEN BY THE ASSESSEE IN RESPECT OF THE LONG TERM CAPITAL GA INS. THE LD. MANIBEN CHHADWA ITA NO.8575/MUM/2010 4 CIT(A) WAS OF THE OPINION THAT THE ENTIRE TRANSACTI ON RESULTING INTO LONG TERM CAPITAL GAINS HAVE BEEN DONE BY A PE NNY STOCK IN WHICH CERTAIN STOCK BROKERS HAVE MANIPULATED AND RI GGED THE MARKET PRICE OF THE SHARES. THE LD. CIT(A) WAS OF T HE OPINION THAT THE MANIPULATION IN THE SHARE PRICES OF THE CO MPANY WAS PRIMA FACIE CONTRAVENING REGULATION 4(2)(A), (E) AN D (O) OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PR ACTICLES RELATING TO SECURITIES MARKET) REGULATIONS, 2003 AN D CLAUSES A(12) TO A(4)(A) OF THE CODE OF CONDUCT SPECIFIED F OR STOCK BROKERS UNDER SCHEDULE II OF THE SEBI (STOCK BROKER S AND SUB- BROKERS) REGULATIONS, 1992. THE LD. CIT(A) ALSO REL IED UPON THE INFORMATION AVAILABLE ON THE INTERNET AND WEBSITE A T WWW.SEBI.IN. THE LD. CIT(A) FURTHER OBSERVED THAT T HE TRANSACTION IN THE SHARES OF THE COMPANY HAVE BEEN DONE IN PHYSICAL FORM WHEREAS THE SAME SHOULD HAVE BEEN DON E UNDER DEMAT SYSTEM WHICH HAS BEEN MADE MANDATORY BY THE S EBI. WITH THESE OBSERVATIONS, THE LD. CIT(A) CONFIRMED T HE ADDITIONS MADE BY THE AO. 7. AGGRIEVED BY THE FINDING OF LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE WHOLE ASSESSMENT HAS BEEN MADE ON PRESUMPTIONS, SUR MISES AND CONJECTURES. THE LD. CIT(A) HAS ALSO FELL INTO SAME ERROR OF ASSUMING CERTAIN EVENTS WHICH ARE NOT EVEN REMOTELY CONNECTED WITH THE FACTS OF THE ASSESSEE. THE LD. COUNSEL ARG UED THAT 20,000 SHARES OF OFFSHORE-FINVEST LTD WERE PURCHASE D AND SOLD AS PER CONTRACT NOTES WHICH WERE AVAILABLE BEFORE T HE LOWER AUTHORITIES. THE LD. COUNSEL POINTED OUT THAT THE S AME ARE EXHIBITED FROM PAGE-4 TO 12 OF THE PAPER BOOK. THE LD. COUNSEL FURTHER POINTED OUT THAT CONFIRMATION FROM MR. RAJE NDRA PRASAD SHAH WHO IS A MEMBER OF CALCUTTA STOCK EXCHANGE HAS BEEN FILED MANIBEN CHHADWA ITA NO.8575/MUM/2010 5 BEFORE THE AO BY WHICH THE SHARE BROKER HAS CONFIRM ED THE TRANSACTION AND THE SAME IS EXHIBITED AT PAGE-14 OF THE PAPER BOOK. THE LD. COUNSEL POINTED OUT THAT THE SAID CON FIRMATION CONTAINS THE COMPLETE ADDRESS OF THE SHARE BROKER W ITH HIS PERMANENT ACCOUNT NO. THE COUNSEL FURTHER ARGUED TH AT THE SHARES WERE PURCHASED BY THE ASSESSEE IN APRIL, 200 3 AS EVIDENCED FROM THE CONTRACT NOTE AND THE SAME HAVE BEEN SOLD IN THE MONTH OF MAY, 2004 I.E. AFTER A PERIOD OF 12 MONTHS, THEREFORE THE GAINS IN THE PRESENT CASE ARE GAINS A RISING ON TRANSFER OF LONG TERM CAPITAL ASSET AND ARE THEREFO RE LONG TERM CAPITAL GAIN. THE LD. COUNSEL FURTHER RELIED U PON THE DECISION OF THE HONBLE JHARKHAND HIGH COURT AT RA NCHI IN TAX APPEAL NO. 4 OF 2011. REFERRING TO THE JUDGEMENT, T HE LD. COUNSEL POINTED OUT THAT THE FACTS AND THE CIRCUMST ANCES OF ASSESSEES CASE ARE IDENTICAL TO THE FACTS AND CIRC UMSTANCES OF THE CASE DECIDED BY THE HONBLE JHARKHAND HIGH COUR T. 8. PER CONTRA, THE LD. DR RELIED UPON THE FINDINGS OF LOWER AUTHORITIES. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE COUNSE LS FROM BOTH THE SIDES. WE FIND THAT THE AO IS CARRIED AWAY IN H IS PRESUMPTIONS AND SURMISES IN RESPECT OF PENNY STOCK . DISREGARDING THE DIRECT EVIDENCES FILED BY THE ASSE SSEE IN THE FORM OF CONTRACT NOTES, BROKERS CONFIRMATION AND P A NO. WITHOUT MAKING ANY ENQUIRY ON HIS PART, THE AO SIMP LY FORMED A BELIEF THAT SINCE SOME IRREGULAR PRACTICES HAVE HAP PENED IN THE STOCK MARKET, THE WINDFALL GAIN MADE BY THE ASSESSE E IS A RESULT OF SUCH MALPRACTICES. WE FIND THAT THE LD. CIT(A) H AS ALSO BEEN CARRIED AWAY WITH SUCH NEWS ITEMS WITHOUT REALIZING THAT HIS POWERS ARE CO-TERMINUS TO THAT OF THE AO AND IF THE AO HAS FAILED TO MAKE CERTAIN ENQUIRIES, THE LD. CIT(A) COULD HAV E DONE SO ON MANIBEN CHHADWA ITA NO.8575/MUM/2010 6 HIS OWN. THE REVENUE CANNOT CONVERT GOOD EVIDENCES INTO BAD EVIDENCES ON SURMISES AND CONJECTURES JUST BECAUSE CERTAIN BROKERS FORMED A CARTEL AND MANIPULATED PRICES OF C ERTAIN STOCKS AND IF THE ASSESSEE IS ONE OF THE BENEFICIAR IES, THEN SOLELY ON THE BASIS OF THIS, IT CANNOT BE SAID THAT THE AS SESSEE HAS ENTERED INTO SOME SHAM TRANSACTION. WE HAVE NO HESI TATION TO SAY THAT THE FINDINGS OF THE LOWER AUTHORITIES ARE TOTALLY BASED ON PRESUMPTIONS AND SURMISES, WITHOUT ANY ENQUIRY. AFTER CONSIDERING DIRECT EVIDENCES BROUGHT ON RECORD BY T HE ASSESSEE AND THE FINDINGS OF THE HONBLE JHARKHAND HIGH COUR T (SUPRA), WE HAVE NO HESITATION TO HOLD THAT THE TRANSACTION HAS RESULTED INTO LONG TERM CAPITAL GAINS AS SHOWN BY THE ASSESS EE. WE THEREFORE DIRECT THE AO TO ACCEPT THE GAINS AS LONG TERM CAPITAL GAINS. 10. AS WE HAVE DECIDED THE APPEAL ON FACTS AND MERI TS OF THE CASE, WE DO NOT PROPOSE TO DECIDE ON THE LEGAL ISSU ES RAISED BY THE APPELLANT. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL AND T HE CONCLUSION DRAWN IN THE ORDER OF THE TRIBUNAL DATED 24/08/2012 (SUPRA), IF KEPT IN JUXTAPOSITION AND AN ALYZED, WE FIND FORCE IN THE ARGUMENT OF LD. COUNSEL FOR THE A SSESSEE. EVEN OTHERWISE, THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF OFFSHORE FINVEST LTD. VS ITO (ITA NO.1272/KOL/2009) VIDE ORDER DATED 09/04/2010, WHEREIN, ADDITION WAS ALSO MADE U/S MANIBEN CHHADWA ITA NO.8575/MUM/2010 7 68 OF THE ACT, DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE. LIKEWISE, IN THE CASE OF SMT. SONAM AGRAWALA VS DCI T (IT(SS)A NO.14/KOL/2011) ORDER DATED 21/06/2013, (FOLLOWING THE TRIBUNAL ORDER IN GROUP CASES OF SMT RITA DEVI & OR S DATED 14/07/2011, WHEREIN, THERE IS A DISCUSSION OF M/S O FFSHORE FINVEST LTD. PAGE-3) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING THE AFORESAID ORD ERS OF THE TRIBUNAL, BEING ON IDENTICAL FACTS/ISSUE, WE ALLOW THE APPEAL OF THE ASSESSEE. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 14/08/2015 SD/ - (B.R.BASKARAN) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % & MUMBAI; ) DATED : 14/08/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. % 0# ( *+ ) / THE CIT, MUMBAI. 4. % 0# / CIT(A)- , MUMBAI 5. 2$3 .# , *+( * 4 , % & / DR, ITAT, MUMBAI 6. 5! 6& / GUARD FILE. / BY ORDER, /2+# .# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI