M/s. Arvind M Jain HUF, Bangalore V. Income Tax Officer, Ward - 5(2)(1), Bangalore

ITA 920/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5078 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 30-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Opportunity of being heard; Cost of acquisition; Accommodation entries; Penny stocks; Set aside
• Section: 201; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - A BENCH : BANGALORE ` BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT ITA NO. 9 20 /BANG/20 19 ASSESSMENT YEAR : 201 4 - 1 5 SHRI. ARVIND M JAIN (HUF), #11, 1 ST FLOOR, CHENNU BUILDING, D.S.LANE, CHICKPET, BENGALURU-560 053. PAN: AA HHA 4611 G VS. THE INCOME TAX OFFICER, WARD 5(2)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI. GANESH R. GHALE, STANDING COUNSEL FOR DEPARTMENT DATE OF HEARING : 1 0 . 02 .202 1 DATE OF PRONOUNC EMENT : 10 . 02 .202 1 O R D E R PER N.V.VASUDEVAN, VICE-PRESIDENT: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 12.03.2019 OF THE CIT(APPEALS)-12, BENGALURU, RELATING TO ASSESSMENT YEAR 2014-15. 2. THE ISSUE THAT NEEDS TO BE ADJUDICATED IN THIS APPEAL IS AS TO WHETHER THE CIT(A) WAS JUSTIFIED IN TREATING A SUM OF RS.9,34,490/-, WHICH WAS CLAIMED BY THE ASSESSEE TO BE SALE PROCEEDS OF SALE OF SHARES OF A COMPANY BY NAME M/S.KAILASH AUTO FINANCE LTD. GIVING RAISE TO LONG TERM CAPITAL GAIN ON SALE OF SHARES, AS SHORT TERM CAPITAL GAIN AND IN NOT ALLOWING ITA NO.920/BANG/2019 2 THE COST OF ACQUISITION OF SHARES AS DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD CAPITAL GAIN. 3. THE ASSESSEE IS A HUF. THE ASSESSEE CLAIMED TO HAVE PURCHASED 40,000 SHARES OF RS.10/- EACH OF A COMPANY BY NAME M/S. KAILASH AUTO FINANCE LTD. FOR CONSIDERATION OF RS.40,000/- IN THE FINANCIAL YEAR 2012-13 (ON 17.10.2012) AND SOLD THOSE SHARES DURING THE PREVIOUS YEAR RELEVANT TO AY 2014-15 (ON 06.12.2013) FOR A SALE VALUE OF RS.9,34,490/-. THE ASSESSEE DECLARED LONG TERM CAPITAL GAIN (LTCG) ON SALE OF THE AFORESAID SHARES AT RS.9,11,490/- AND CLAIMED THE SAID LONG-TERM CAPITAL GAIN AS EXEMPT U/S. 10(38) OF THE ACT. 4. THE AO NOTICED THAT THERE WAS AN INVESTIGATION CARRIED OUT BY THE DIRECTORATE OF INVESTIGATION, KOLKATA INTO 84 PENNY STOCKS OF WHICH THE COMPANY M/S. KAILASH AUTO FINANCE LTD., WAS ONE. ACCORDING TO THE AO SUCH INVESTIGATION BROUGHT TO LIGHT THAT THERE WAS AN ORGANIZED RACKET OF GENERATING BOGUS ENTRIES OF LONG-TERM CAPITAL GAIN WHICH IS EXEMPT. THE MODUS OPERANDI WAS TO BUY SHARES OF COMPANIES CONTROLLED BY THE OPERATORS AT A LESS PRICE AND THEREAFTER RIG THE PRICE OF THE STOCK TO A HIGH LEVEL AND SELL THE SHARES AND DECLARE LONG-TERM CAPITAL GAIN. ACCORDING TO THE INVESTIGATION CARRIED OUT BY THE DEPARTMENT, THE OPERATORS WERE DUMMY PAPER COMPANIES AND THE LONG-TERM CAPITAL GAIN DECLARED AND CLAIMED AS EXEMPT WAS NOTHING BUT ASSESSEES OWN MONEY WHICH HAS TO BE ADDED U/S. 68 OF THE ACT. THE AO HAS ALSO REFERRED TO THE FACT THAT SECURITES AND EXCHANGE BOARD OF INDIA (SEBI) HAS TAKEN ACTION ON CERTAIN SUSPECT SCRIPTS AND HAS PASSED DIRECTIONS SUSPENDING TRADING IN M/S. KAILASH AUTO FINANCE LTD.. 5. BASED ON THE ABOVE SAID INVESTIGATION CARRIED OUT BY THE DIRECTORATE OF INVESTIGATION, KOLKATA, THE STATEMENTS OF VARIOUS OPERATORS, ENTRY PROVIDERS AND STOCK BROKERS ADMITTING ACCOMMODATION ENTRIES OF LONG TERM ITA NO.920/BANG/2019 3 CAPITAL GAIN AND THE ORDERS SEBI SUSPENDING TRADING IN M/S. KAILASH AUTO FINANCE LTD., THE AO WAS OF THE VIEW THAT THE SALE OF SHARES RESULTING IN THE LONG-TERM CAPITAL GAIN DECLARED BY THE ASSESSEE HAS TO BE TREATED AS UNEXPLAINED CASH CREDIT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, THE AO TREATED THE SALES PROCEEDS OF SHARES AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. THE CIT(A) HELD THAT ASSESSEE FAILED TO PROVE COST OF PURCHASE OF SHARES AND HENCE HE TREATED COST OF ACQUISITION AS NIL. THE CIT(A) ALSO HELD THAT GAIN ON SALE OF SHARES HAS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. I HAVE HEARD THE SUBMISSION OF THE LEARNED AR WHO RELIED ON THE ORDER OF CIT(A). DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHALF OF THE ASSESSEE. I THEREFORE PROCEED TO DECIDE THE APPEAL EX-PARTE ON THE BASIS OF MATERIAL ON RECORD. 8. I FIND THAT THE AO HAS ACCEPTED THE GENUINENESS OF SALE OF SHARES BY THE ASSESSEE BUT HAS HELD THAT THE ASSESSEE FAILED TO ESTABLISH PURCHASE OF SHARES AND THE COST OF ACQUISITION OF THE SHARES. HE HAS ALSO ADOPTED THE DATE OF PURCHASE AS THE DATE ON WHICH SHARES WERE DEMATERIALIZED IN THE DEMAT ACCOUNT OF THE ASSESSEE AND ON THAT BASIS CONCLUDED THAT THE GAIN ON SALE OF SHARES IS SHORT TERM CAPITAL GAIN. 9. I AM OF THE VIEW THAT THE ASSESSEE SHOULD BE AFFORDED AN OPPORTUNITY TO PRODUCE CONTRACT NOTE FROM A VALID BROKER AND THE DATE OF DELIVERY OF SHARES TO THE ASSESSEE. I THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE ISSUE TO THE AO FOR DECIDING THE ISSUE IN THE LIGHT OF THE ABOVE OBSERVATIONS AFTER AFFORDING THE ASSESSEE OPPORTUNITY OF BEING HEARD. ITA NO.920/BANG/2019 4 10. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (B. R. BASKARAN) (N.V VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED : 10.02.2021 /NS/* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.