Assistant Commissioner of Income Tax, Central Circle-4, Surat V. Shri Dhiraj D. Gangani, Surat

ITSSA 61/SRT/2022

AI Insights

The case involves an appeal by the Revenue against the decision of the CIT(A) which had favored the assessee, Shri Dhiraj D Gangani, in a dispute concerning the taxation of Long Term Capital Gains (LTCG) from the sale of shares in M/s Veto Switchgears & Chemical Ltd. The Assessing Officer had treated the gains as unaccounted income from penny stocks, based on the premise that the shares were part of an accommodation entry scheme. However, the CIT(A) found that the shares were acquired through a public issue and were sold legitimately, thus eligible for tax exemption under section 10(38) of the Act. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301745 (ITAT-SURAT)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-02-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 03-08-2022
• Other Referred Cases: CIT v. Maheshchandra G Vakeel
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Accommodation entries; Penny stocks; Set aside; Capital Gains; Bogus
• Section: 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./IT(SS)A No.61/SRT/2022 (Ǔनधा[रणवष[ / Assessment Years: (2015-16) (Physical Court Hearing) Assistant Commissioner of Income-tax, Central Circle-4, Surat, Room No. 508, 5th Floor, Aayakar Bhawan, Majura Gate, Surat-395001 Vs. Shri Dhiraj D Gangani 2005, New Bombay Market, Varachha Road, Surat-395006 èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAPPG6125P (अपीलाथŎ /Assessee) (ŮȑथŎ /Respondent) िनधाŊįरती की ओर से /Assessee by : Shri Kiran K. Shah, CA राजˢ की ओर से/Revenue by : Shri Ashok B. Koli, CIT- DR स ु नवाई कȧ तारȣख/ Date of Hearing : 01/03/2023 घोषणा कȧ तारȣख/Date of Pronouncement : 21/03/2023 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the Revenue, pertaining to Assessment Year (AY) 2015-16, is directed against the order passed by the Ld. Commissioner of Income-tax (Appeals)-4, Surat [Ld. CIT(A) for short] dated 09.05.2022 which in turn arises out of assessment order passed by Assessing Officer u/s 143(3) r.w.s. 153A of the Income Tax Act, 1961 [hereinafter referred to as the “Act”] dated 30.09.2021. 2. Grounds of appeal raised by the Revenue are as follows: “[i] On facts and circumstances of the case and in law, the Ld CIT(A) has erred in allowing the appeal of assessee, despite the fact that the assessee was involved in organized tax evasion activities and the scrip in which the assessee has traded was a penny scrip and hence, the exempted income of Rs.2,03,822/- claimed under the guise of LTCG was bogus. [ii] On facts and circumstances of the case and in law, the Ld CIT(A) has erred in allowing the addition made on sale of penny stock without considering the fact that the addition made by the Assessing Officer was based on incriminating documents found and seized during the course of search which clearly suggested that the scrips in which the assessee has traded was a penny scrip and further enquires / verification carried out by the Assessing Officer confirmed that the transactions Page | 2 IT(SS)A No.61/SRT/2022 A. Y. 2015-16 Sh. Dhiraj D Gangani carried out by the assessee were only accommodation entries to show a legitimate nature to the bogus income earned. [iii] It is, therefore, prayed that the order the Ld. CIT(A)-4 Surat may be set aside and that of the AO may be restored to the above extent. [v] The assessee craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.” 3. Brief facts of the issue in dispute are stated as under. The assessee before us is an individual. The Assessing Officer, during the assessment proceedings, on perusal of details available on record, it was noted by him that assessee have made investment in the purchase of shares M/s Veto Switchgears & Chemical Ltd of Rs.1,50,000/- in the financial year 2013-14 and sold the entire shares of M/s Veto Switchgears and Chemical Ltd in the financial year 2014-15 for the amount of Rs.2,03,822/- against the purchase cost of Rs.1,50,000/-. The assessee earned Long Term Capital Gain to the tune of Rs.53,822/- (Rs.2,03,822- Rs.1,50,000). The Assessing Officer observed that the company, M/s Veto Switchgears and Chemical Ltd has been found to be providing accommodation entry to various business entities. The share of the company is managed by share market operator which is penny stock. Therefore, assessing officer noted that assessee has earned unaccounted income to the extent of Rs.2,03,822/- through the accommodation entry of penny stocks. Therefore, the unaccounted accommodation entry of penny stocks of Rs.2,03,822/- was treated as unaccounted income and added back to assessee’s total income for the year under consideration. 4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Learned CIT(A) who has deleted the addition made by the Assessing Officer. 5. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. Learned DR for the Revenue, before the Bench, has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, Learned Counsel for the assessee relied on the order passed by Ld. CIT(A) and submitted written submission before the Bench, which we have gone through. We have heard both the parties. According to the Assessing Officer, the assessee had made investment of Rs.1,50,000/- in the shares of M/s Veto Switch Gears and Chemical Page | 3 IT(SS)A No.61/SRT/2022 A. Y. 2015-16 Sh. Dhiraj D Gangani Ltd. in F.Y 2013-14 and sold the said shares in FY 2014-15 for the amount of Rs.2,03,822/- and thus earned a capital gain of Rs.53,822/-. The Assessing Officer held that the said company in which the assessee had invested was found to be providing accommodation entries to various business entities and hence, the shares in which the assessee had made the investment was treated as penny stock. Accordingly, the entire sale consideration was treated as income of the assessee from sale of penny stock and brought to tax accordingly. During appellate proceedings, the assessee submitted before ld CIT(A) that the shares were allotted to the assessee in the public issue and were not bought in the stock exchanges. He further submitted that the assessee had sold the shares and paid STT as per the sale contract and thus was eligible for exemptions u/s 10(38) of the Act. The shares in question were bought through account payee cheques and the addition was made without giving any show cause notice. The assessee placed reliance on the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Maheshchandra G Vakeel reported in 40 taxmann.com 326. In the said case Hon'ble High Court held “that where the assessee proves the genuineness of shares transactions by contract notes of sale and purchase, bank statement of a broker, demat account showing transfer and abstract of transaction was not justified in treating the capital gains as unexplained cash credit”. We note that during the appellate proceedings, the assessee has produced allotment letter dated 12.12.2012, before ld CIT(A), in which the assessee was issued 3000 equity shares at the rate of Rs.50/- for a total consideration of Rs.1,50,000/-. The said shares were held by the assessee in his Demat account which is evident from the details produced. The shares were also sold through the authorized broker M/s Arcadia shares and brokers. In the same year, the assessee has other transactions of purchase and sale of shares through the same broker. Further, the assessee has earned capital gains of merely Rs.53,511/- on investment of Rs.1,50,000/- and therefore apparently does not look like a penny stock at least from the point of view of the assessee. In view of the above facts, the ld CIT(A) deleted the addition amounting to Rs.2,03,822/-. 6. We note that this transaction was accounted by the assessee, therefore no addition ought to be made in respect of accounted transactions in the block Page | 4 IT(SS)A No.61/SRT/2022 A. Y. 2015-16 Sh. Dhiraj D Gangani assessment proceedings u/s 153A of the Act unless there is material evidence on that issue in the seized records. No evidence was found which shows that the LTCG was bought by giving unaccounted cash. We note that the shares were allotted in the public issue and therefore, the purchase of shares ought not to be doubted. The shares were sold through approved brokers and there is payment of STT as per the sale contracts and, therefore, assessee is eligible for deduction u/s 10(38) of the Act. The purchase and sale of shares, were made through account payee cheques and in practical phenomenon on person would buy LTCG just for an amount of Rs.53,822/- (very small amount). Further, even if addition was to be made by AO, it would be in respect of LTCG alleged to be bogus capital gain which was Rs.53,822/- only, whereas AO made addition of Rs.2,03,822/-. Based on this factual position, the addition made by the assessing officer is not sustainable in the eye of law, and therefore we are of the view that ld CIT(A) has rightly deleted the addition. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss the ground raised by the Revenue. 7. In the result, appeal filed by the Revenue is dismissed. Order is pronounced on 21/03/2023 by placing result on notice board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat / Ǒदनांक/ Date: 21/03/2023 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order Sr. Private Secretary/Private Secretary/ Assistant Registrar, ITAT, Surat