SHRI. VINAY KUMAR HIRAWAT, CHENNAI V. ACIT NON CORPORATE CIRCLE 9 (1), CHENNAI

ITA 901/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2298 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 14-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D ANAND
• Keywords: Principle of natural justice

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO. 901/MDS/2018 / ASSESSMENT YEAR : 2013-2014. SHRI. VINAY KUMAR HIRAWAT, NO.10, MONTEITH LANE, EGMORE, CHENNAI 600 008. [ PAN AAAPH 6106Q ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE -9(1), CHENNAI. ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. D. ANAND, ADVOCATE /RESPONDENT BY : SHRI. CLEMENT RAMESH KUMAR, ADDL. CIT /DATE OF HEARING : 20-08-2018 ! /DATE OF PRONOUNCEMENT : 03-09-2018 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS D IRECTED AGAINST AN ORDER DATED 29.01.2018 OF THE COMMISSIO NER OF INCOME-TAX (APPEALS)-10, CHENNAI, IT IS AGGRIEVED THAT ITS CLA IM OF EXEMPTION ON LONG TERM CAPITAL GAINS ON SALE OF EQUITY SHARES WA S NOT ALLOWED BUT ITA NO.901/MDS/2018. :- 2 -: CONSIDERED AS UNEXPLAINED INCOME U/S.68 OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT). 2. FACTS APROPOS ARE THAT ASSESSEE FILED HIS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF B92,68,560/-. ASSESSEE HAD CLAIMED LONG TERM CAPITAL GAINS OF B94 ,12,912/- AS EXEMPT U/S.10(38) OF THE ACT. EXPLANATION OF THE A SSESSEE WAS SOUGHT ON SUCH LONG TERM CAPITAL GAINS. ITS REPLY AS UND ER:- THE ASSESSEE HAS BEEN SINCE YEAR DEALING IN SHARE S AND SECURITIES AND HOLDING INVESTMENTS IN VARIOUS COMPANIES. THE ASSESSEE HAD ORIGINALLY APPLIED FOR 12500 SHARES OF PARINIDHL PROPERTIES LTD. ON 1. 4.2011 AND THE PAYMENT AMOUNTING TO 125000/- WAS MADE THROUGH CENTRAL BANK OF INDIA VID E CHQ NO.213417 DATED 1.4.2011 IN FAVOUR OF THE COMPANY. THE ABOVE COMPANY HAS ALLOTTED 12500 SHARES TO THE ASSESSEE V IDE THEIR ALLOTMENT LETTER DATED 21. 4.2011. THE RESPECTIVE SHARES WERE DEMATTED SUBSEQUENTLY AND ARE APPEARING IN THE DEMA T HOLDING AT THE ASSESSEE ALONGSIDE THE VARIOUS OTHER SHARE HOLD ING. DURING THE YEAR 201213 ON 20.10.2012 THE SAID COMP ANY PARINIDHI PROPERTIES WAS MERGED WITH LUMINAIRE TECH NOLOGIES VIDE COURT ORDER AND THE 12500 SHARES OF LUMINAIRE TECHNOLOGIES LTD WERE ALLOTTED DIRECTLY IN THE DEMA T ACCOUNT SUBSEQUENT TO MERGER. FURTHER ON 10.11.2012, 31/12/ 2012 AND 5/02/2013 THE ASSESSEE HAD SOLD THE SAID 12500 SHAR ES IN BOMBAY STOCK EXCHANGE ITD(WHERE THE SHARES WERE LIS TED) THROUGH A BROKER SHILPA STOCK BROKER PRIVATE LTD. T HE ASSESSEE DULY PAID THE APPLICABLE SECURITIES TRANSACTION TAX (STT). THE RESPECTIVE CONTRACT OF SALE IS ENCLOSED FOR YOUR KI ND PERUSAL AND RECORDS. THE ASSESSEE DULY RECEIVED PAYMENT FROM TH E RESPECTIVE BROKER. ' 3 . LD. ASSESSING OFFICER BASED ON INFORMATION COMING OUT OF INVESTIGATIONS DONE BY THE DIRECTORATE OF INCOME TA X (INV) KOLKATA, CAME TO AN OPINION THAT THE CLAIM OF LONG TERM CA PITAL GAINS WAS ON ITA NO.901/MDS/2018. :- 3 -: SALE OF PENNY STOCK OF A PAPER COMPANY, OPERATED BY AN ENTRY OPERATOR CALLED SHRI. DEEPAK PATWARI. AS PER LD. A SSESSING OFFICER SHRI. DEEPAK PATWARI HAD INDENTIFIED THE SCRIPT OF LUMI NAIREIRE TECHNOLOGIES LTD, AS ONE OF SUCH PENNY STOCK COMPAN IES AND ALSO IDENTIFIED THE PERSONS TO WHOM HE HAD PROVIDED BOG US LONG TERM CAPITAL GAINS. FURTHER, AS PER LD. ASSESSING OFFIC ER ASSESSEES NAME APPEARED IN SUCH LIST. HE CONCLUDED THAT SHRI. D EEPAK PATWARI HAD IN HIS STATEMENT ACCEPTED THE CREATION OF BOGUS ENT RIES FOR TAKING ADVANTAGE OF EXEMPTION GIVEN UNDER SECTION 10(38) O F THE ACT ON CAPITAL GAINS ARISING ON SALE OF SHARES. THUS, HE HELD THAT CLAIM OF LONG TERM CAPITAL GAINS BY THE ASSESSEE WAS NOT ACCEPTA BLE. THE CLAIM WAS NOT ACCEPTED AND THE AMOUNT OF B94,12,912/- WAS A DDED U/S.68 OF THE ACT. 4. APPEAL OF THE ASSESSEE BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS PARTIALLY SUCCESSFUL. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT CAPITAL GAINS CLAIME D BY THE ASSESSEE ON SALE OF THE SHARES OF M/S.LUMINAIRE TECHNOLOGIES LTD WHICH COULD BE CONSIDERED AS BOGUS WAS B58,53,940/- ONLY. ACCO RDING TO HIM, THE BALANCE SUM OUT OF B94,12,912/- WAS ON ACCOUNT OF G ENUINE SALES. HE THUS UPHELD THE ORDER OF THE LD. ASSESSING OFFIC ER IN SO FAR AS IT RELATED TO THE GAINS ARISING FROM SALES OF SHARES O F M/S.LUMINAIRE TECHNOLOGIES LTD, WHILE DELETING THE BALANCE ADDITI ON. ITA NO.901/MDS/2018. :- 4 -: 5. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE STATEMENT OF SHRI. DEEPAK PATWARI WAS NEVER MAD E AVAILABLE TO THE ASSESSEE NOR ASSESSEE GIVEN AN OPPORTUNITY TO CROSS EXAMINE THE SAID PERSON. FURTHER, AS PER THE LD. AUTHORISED REPRESE NTATIVE, THE REPORTS OF INVESTIGATION DEPARTMENT OF REVENUE (CALCUTTA) R ELIED ON BY THE LD. ASSESSING OFFICER WAS ALSO NOT PUT TO THE ASSESSEE. THUS, ACCORDING TO HIM, THERE WAS GROSS VIOLATION OF THE RULES OF NATU RAL JUSTICE. RELIANCE WAS PLACED ON DECISION OF CO-ORDINATE BENCH IN THE CASE OF VIMAL CHAND GULAB CHAND VS. ITO, PRAVEEN CHAND VS. ITO, M AHENDRA KUMAR BHANDARI C VS. ITO (ITA NO.2003/2017, 1721/2017, 22 93/17 & 2748/17, DATED 06.4.2018). 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES SUB MITTED THAT WHOLE TRANSACTIONS WERE SHAM AND MAKE BELIEF. ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN TREATING THE SUM OF B58,53,940/- AS UNEXPLAINED INCOME U/S.68 OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF HEERACHAND KANUNGA VS. ITO (ITA 2786 & 2787/2017 , DATED 03.05.2018). 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT LONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE AS EXEMPT U/S.10(38) OF THE ACT AROSE ITA NO.901/MDS/2018. :- 5 -: ON ACCOUNT OF SALE OF EQUITY SHARES OF M/S. LUMINAI RIRE TECHNOLOGIES LTD. IT APPEARS THAT ASSESSEE COULD NOT PRODUCE ANY EVIDENCE AS TO HOW IT IDENTIFIED EQUITY SHARES OF M/S.PARDHI PROPE RTIES LTD., FOR MAKING AN OFF MARKET PURCHASE. ASSESSEE RECEIVED S HARES IN M/S. LUMINAIRIRE TECHNOLOGIES LTD. BY VIRTUE OF ITS HOL DING IN M/S.PARDHI PROPERTIES LTD, WHEN LATTER WAS MERGED WITH THE FO RMER. IN THE CASE OF SHRI HEERACHAND KANUNGA (SUPRA) RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE WHAT WAS HELD BY THE CO-ORDINATE BEN CH IS REPRODUCED HEREUNDER :- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADM ITTEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT TO BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO B E SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER O F THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE. THE MA IN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADM ITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL GAINS TO H IS CLIENTS. THE SAID SHRI ASHOK KUMAR KAYAN ALSO ALLEG EDLY SEEMS TO HAVE PROVIDED THE ASSESSEES NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STATEMENT G IVEN BY SHRI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE FOR CROSS- EXAMINATION. IN THE ABSENCE OF OPPORTUNITY OF CROSS - EXAMINATION, THE STATEMENT REMAINS MERE INFORMATION AND SUCH INFORMATION CANNOT BE FOUNDATION FOR ASSESSMEN T. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER S HARE TOTALING INTO RS.3,00,000/-. THE ASSESSEE CLAIMS TO HAVE PAID CASH FOR THE PURCHASE OF THESE SHARES. THE PRIMARY QUESTION WOULD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BEEN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHA RE CERTIFICATES AND THE SHARE TRANSFER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A(3)? WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF THE ASSE SSEE ON 24.04.2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW ITA NO.901/MDS/2018. :- 6 -: WAS THE TRANSACTION DONE? WHO APPLIED FOR THE DEMAT ING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANSFERRED TO THE DEMAT ACCOUNT OF THE ASSE SSEE? TO WHOM WERE THE SHARES SOLD DURING THE ASSESSMENT YEA RS 2010-11 & 2011-12? WHEN WERE THE CHEQUES RECEIVED B Y THE ASSESSEE? FROM WHOM DID THE ASSESSEE RECEIVED T HE CHEQUES? WAS THERE ANY CASH DEPOSIT IMMEDIATELY PRI OR TO THE ISSUING OF THE CHEQUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE SHARES OF THE ASSESSEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7. 1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATE S THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL , KOLKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED T HAT THE ASSESSEE IN GOOD FAITH HAS PURCHASED THE SHARES OF M/S.BPL FROM A SUB-BROKER IN HIS FRIENDS CIRCLE. WHAT IS TH E TRUE NATURE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTU ALLY PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESSI ON OF THE SHARES IN ITS PHYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRADING IN SHARES. IF THIS IS SO, DOES THE DEMAT ACCOUNT SHOW SUCH TRANSACTIONS B EING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRA NSACTION. THUS, CLEARLY THE FACTS REQUIRED FOR ADJUDICATING T HE APPEALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVE R TO SHOW THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUSE ASSUMING THAT THE DEMAT HAS BEEN DONE AND THE SHARES OF M/S.BPL HAS COME INTO THE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSSESSION OF THE SHARES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. T HIS IS ALSO NOT FORTHCOMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS SUBMITTED BY THE LD. AR THAT THE DEMAT WAS DONE ON VARIOUS DATES. THEN THE QUEST ION RISES AS TO WHY THERE IS SO MUCH OF DIFFERENCE IN T HE DATES OF DEMATING WHEN 15000 SHARES HAVE BEEN PURCHASED TOGE THER ON 24.04.2008. NO DETAILS IN RESPECT OF M/S.BPL COM PANY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD TO THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/ - TO RS.352/- IN A PERIOD OF TWO YEARS. THIS WOULD CLEAR LY BE A CASE WHERE THE SHARE VALUE OF THE COMPANY WAS HITTI NG THE CIRCUIT BREAKER OF THE STOCK EXCHANGE ON A DAILY BA SIS AND OBVIOUSLY IT WOULD HAVE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE NOT COMING OUT OF THE ASSESSMENT ORDE R NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASS ESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THIS APPEAL MUST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE I TS CASE AND WE DO SO. ITA NO.901/MDS/2018. :- 7 -: 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGAINST T HE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GI VEN TO THE ASSESSEE NOR HAS SHRI ASHOK KUMAR KAYAN BEEN PROVIDED TO THE ASSESSEE FOR CROSS-EXAMINATION. HOW EVER, THE ASSESSEE SHALL PROVE THE TRANSACTION OF THE LON G TERM CAPITAL GAINS IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10(38) BY PROVIDING ALL SUCH EVID ENCES AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALS O BY PRODUCING THE PERSONS THROUGH WHOM THE ASSESSEE ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURC HASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB- BROKER, FRIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. IN LINE WITH THE ABOVE, WE ARE OF THE OPINION THAT QUESTION REGARDING GENUINENESS OF THE CLAIM OF LONG TERM CAPITAL GAINS REQUIRES TO BE RESTORED TO THE LD. ASSESSING OFFICER FOR RECONSIDE RATION, WHO HAS TO GIVE THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTI ATE ITS CASE. REVENUE HAS TO FURNISH TO THE ASSESSEE ALL THE STA TEMENTS RELIED ON BY THEM. USEFUL REFERENCE MAY BE MADE TO THE LAW LAID DOWN BY HONBLE APEX COURT IN THE CASE OF CIT VS. SUNITA DHADDA, SLP (CIVIL ) NO.9432/2018, DATED 28.03.2018 , WHILE AFFIRMING A JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS.SMT. SUNITA DHADDA , WHERE THE IMPORTANCE OF PROVIDING AN OPPORTUNITY TO CROSS EXAMINE THE WITNESS HAS BEEN STRESSED. THEIR LORDS HIP HELD THAT THIS WAS AN IMPORTANT CONSTITUENT OF NATURAL JUSTICE. ONLY AFTER ALL THE STEPS REQUIRED UNDER LAW IS COMPLETE, IT CAN BE AS CERTAINED WHETHER CLAIM OF CAPITAL GAINS WAS BOGUS OR NOT. WE THEREFO RE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF ITA NO.901/MDS/2018. :- 8 -: THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 3RD DAY OF SEPTEMB ER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 3RD SEPTEMBER, 2018. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF