KASHYAP M VORA (HUF),MUMBAI V. INCOME TAX OFFICER , WARD, 19(2)(2), MUMBAI

ITA 3394/MUM/2024

AI Insights

The case involves Kashyap M. Vora (HUF), who appealed against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi, which confirmed the additions made by the Income Tax Officer under sections 68 and 69C of the Income-tax Act, 1961. The additions were related to the sale proceeds of shares of VMS Industries Ltd., which were alleged to be part of a stock manipulation scheme. The Tribunal examined the evidence and arguments presented by both parties, focusing on the genuineness of the share transactions and the legal basis for the additions under the cited sections of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396567 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs Shyam Pawar, PCIT vs Ziauddin A. Siddique, CIT vs Jamna Devi I Agrawal, Adamine Construction P. Ltd vs 99 Taxman 45
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: K. GOPAL
• Keywords: Set aside; Unexplained cash credit; Unexplained expenditure; Capital Gains; Principle of natural justice; Accommodation entries; Bogus loan; Bogus
• Section: 147; 148; 143(3); 68; 69C

Judgement Text

"IN THE INCOME-TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No. 3394/MUM/2024 (A.Y. 2012-13) Kashyap M. Vora (HUF), 401/402 A, Sanidhya Apts, 22, A, Walkeshwar Road, Mumbai –400 006, Maharashtra v/s. बनाम Income Tax Officer, Ward – 19(2)(2), Room No. 214, 2nd Floor, Matru Mandir, Tardeo Road, Mumbai – 400 007, Maharashtra स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAIHK1353E Appellant/अपीलार्थी .. Respondent/प्रतिवादी Appellant by : Shri K. Gopal, Adv. Respondent by : Shri Hemanshu Joshi (Sr. DR) Date of Hearing 15.05.2025 Date of Pronouncement 26.05.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 17.05.2024 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147 r.w.s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 17.12.2019 as passed by the Income Tax Officer, Ward-19(2)(2), Mumbai for the Assessment Year [A.Y.] 2012-13. P a g e | 2 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora 2. The grounds of appeal are as under:- I. Legal: Reopening of the Assessment under section 147 of the Act is bad in law 1. On the facts and circumstances of the case as well as law on the subject, the Ld. National Faceless Appeal Center (hereinafter referred to as 'The NFAC') has erred in reopening assessment u/s 147 r.w.s 148 of the Income Tax Act, 1961(hereinafter referred to as ‘Act’) II. Merit: 2. The Ld. NFAC erred in conforming the action of the AO in making the following additions A. Addition of sale consideration on transfer of shares of M/s VMS Industries Ltd. Under section 68 of the Act. Rs. 62,75,200/- B. Addition on account of alleged commission under section 69C of the Act. Rs. 1,25,504/- The above additions made without appreciating the facts, evidence placed on record and the submissions made by the Appellant is not at all justified and the same may be deleted. 3. The Ld. NFAC erred in confirming the addition of Rs.62,75,200/- being sale consideration for transfer of shares of VMS Industries Ltd. By invoking the provisions of section 68 of the Act without appreciating the fact that the shares were purchased and sold through recognized stock exchange and both the purchase and the sale transactions suffered STT. Thus, the addition made merely on the basis conjecture and surmises under section 68 of the Act is not at all justified and the same may be deleted. 4. The Ld. NFAC failed to appreciate that the Appellant, during the course of the assessment proceedings, placed on record documentary evidence to establish the genuineness of the transaction and denied any link or involvement of the persons mentioned in the assessment order with respect alleged accommodation entries as the Appellant has earned short term capital gains and the same has been offered for tax. The Appellant has not claimed exemption of any long-term capital gains. Thus, the modus operandi mentioned in the assessment order is not yet relevant in the Appellant's case. Thus, the addition of Rs. 62,75,200/- made merely on the basis of presumptions is not at all justified and the same may be deleted. 5. Without prejudice to the above, the Ld. NFAC failed appreciate that the AO has not appreciated that the addition Rs. 62,75,200/- cannot be made to the total income of the Appellant for the impugned assessment year i.e. AY 2012-13 as the sale trade settlement R001-2 was recorded in the books of accounts of the Appellant on 2/04/2012 which falls in the AY 2013-14. Thus, the addition made in the impugned assessment year by invoking P a g e | 3 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora provisions of section 68 of the Act amounting to Rs. 62,75,200/- is not at all justified and the same may be deleted. A. Addition on account of alleged commission under section 69C of the Act. Rs. 1,25,504/- 6. The Ld NFAC has erred in confirming the action of Assessing Officer in making addition of Rs. 1,25,504/- on account of unexplained expenditure under section 69C of the Act for alleged commission payment for procuring the alleged accommodation entry merely on the basis of conjecture and surmises. 3. Briefly stated, facts of the case are that the assessee had filed its return of Income for the relevant assessment year declaring income of Rs.6,40,060/-.Subsequently, case was reopened u/s 148 of the Act on account of dealing in 74,000 shares of an alleged penny stock, VMS Industries Limited(henceforth ‘VMS’). Based on certain report of the Investigation wing of the Department, the AO concluded that the transactions were liable to be treated as unexplained cash credit u/s 68 of the Act. It was alleged by the AO that consequent to a search in Naresh Jain group, it was found by the Department that he was part of a syndicate of persons involved in Stock manipulations leading to generating bogus Short and Long Term Capital gains, Bogus loans etc. It was inter alia found that the this group indulged in such exercise in seven scrip out of one VMS in which the assessee had made share transactions. Sri Naresh Jain in the course of search on him had admitted that this scrip was manipulation for ulterior gains providing bogus entries to various beneficiaries. Therefore, the assessee being one P a g e | 4 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora of the beneficiaries was considered by the AO to have indulged in such a penny stock for artificial and non genuine gain. He treated the entire transactions in the above scrip as unexplained u/s 68 of the Act. The income of the assessee was therefore determined at Rs. 70,40,760/- as per order passed under section 143 (3)/147 of the Act involving following additions: Sr. Particulars of additions/disallowance Amount (Rs.) A Unexplained Income u/s. 68 of the Act. 62,75,200/- B Estimated Commission paid to the entry provider u/s. 69C 1,25,504/- 4. Before the ld.CIT(A),the ld.AR contented that in the course of the assessment proceedings, the assessee was required to show cause as to why the sale proceeds of the said shares of Rs.62,75,200/- should not be treated as unexplained credit in the books of accounts u/s.68.In response, it provided an elaborate response on the matters stated in the show cause notice supported its contention with the relevant contract notes, demat statements, broker ledger, etc to prove the genuineness of the transactions. The assessee further clarified that the said transactions of investment were effected on a recognized stock exchange and that they had suffered STT at the prescribed rates. The assessee also requested cross examination in the best interest of natural justice. It was submitted further that the ld.AO simply reproduced the findings of the P a g e | 5 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora Investigation wing, without making any independent inquiry. The findings reproduced in the assessment order make absolutely no reference to the details submitted by the assessee. He did not provide any tangible basis of making the said addition u/s.68.The ld.AO went on making an ad hoc addition of 2% of the sale proceeds u/s.69C amounting to Rs.1,25,504/- without giving it any opportunity to explain or clarify in this regard. 4.1 It was further argued by the ld.AR that addition u/s.68 of the Act is invited in cases where the assessee offers no explanation as regards the credit found in the books of accounts itself or where the explanation provided is not found to be satisfactory in the opinion of the Ld.AO. The assessee has time and again clarified that the nature and source of the sale and purchase of the said shares is well established given that the purchase as well as the sale of the said shares was through a SEBI Registered Broker on a Recognised Stock Exchange i.e. BSE. The said transactions are supported by appropriate documentation in the form of Contract Notes, Demat Statements, Broker Ledger, etc. The AO merely proceeded based on statements of third parties that made no direct or indirect reference to the submissions of the assessee. Thus, the rigours of Section 68 are not invited in this case. Hence, the addition of Rs.62,75,200/- should be deleted. P a g e | 6 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora 5. The ld.CIT(A), in the subsequent appeal upheld the above additions based on the findings of the Investigation wing and reproduced in the assessment order though before him the assessee pleaded that the transaction by the assessee were genuine one which was supported by required papers and documents. He inter alia observed that all the transactions made by the assessee were in fact made through the Demat account of the broker which proved that these were non genuine. He upheld the addition made u/s 68 in respect of the sale proceeds of the shares and also confirmed the addition u/s 69C of the Act on account of unexplained expenditure in form of commission paid. 6. Before us, the ld.DR has supported the orders of authorities below. Per contra, the ld.AR has reiterated the contentions as made before them. It is further submitted that since the transaction of sale of shares entered into on 29.03.2012 was settled on the Stock Exchange in FY 12-13 (AY 13-14) and also posted by its stock broker in FY 12-13 (AY 13-14) in the appellant's ledger, the assessee offered the said gains to tax in FY 12-13 (AY 13-14). Hence, strictly speaking the credit referred to by the Ld.AO of the sale proceeds was made in the books of the assessee in FY 12-13 (AY 13-14) and not in the books of FY 11-12 (AY 12-13). Given this, without prejudice to the assessee's contention above, the provisions of section 68 if ever invited should be invited with regard to the P a g e | 7 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora assessment of income for AY 2013-14 and not AY 2012-13. Hence, the addition of Rs.62,75,200/- u/s.68 should be deleted. 6.1 It is further submitted that the broker concerned JMP Securities P.Ltd which was earlier identified as one of the offending brokers by the SEBI indulging in manipulation of VMS has already been exonerated vide its order dated 15.12.2017 which is placed on record. It is also brought to our knowledge that the said company has subsequently came up for its IPO also which further proves its genuineness. Therefore, on this count holding the assessee as part of the entire racket is not justified and treating a bonafide share transactions as non genuine liable to be treated as unexplained. 6.2 It is also argued that the verbatim reproduction of statements of the said Naresh Jain and his associates, provided in the assessment order at no place refers to the assessee or any person or entity associated to him. He has not been provided any opportunity to cross examine any person or persons involved in the market manipulation exercise even after repeated requests. The principles of natural justice have been blatantly violated. He has formed his opinion and finalized the assessment merely on the basis of market traded transactions that give no information as regards the involvement of the assessee in the alleged P a g e | 8 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora scam. It is well settled that suspicions cannot take place of hard evidence. Hence, the assessment of income in the present case on mere generalisations and without any evidence, whatsoever to prove that the assessee was in fact involved in the so-called accommodation and market manipulation exercise, is clearly bad in law. The AO erred in passing the assessment order solely on the basis of assumptions, presumptions, surmises and conjecture without any cogent material or evidence which is illegal and contrary to the principles of natural justice. 6.3 The ld.AR has placed reliance on plethora of decisions of various courts of law including those of jurisdictional High Court and coordinate bench of Mumbai ITAT wherein on similar facts and circumstances additions based on Investigation wing of the Department has been deleted. A copy is placed of the decision of the coordinate bench of ITAT, Mumbai in the case of Lalita Ben P.Shah in ITA No.2008/Mum/2023 dated 5.4.2024 wherein the hon’ble Tribunal deleted similar addition placing reliance on the judgments of hon’ble Bombay High court in CIT vs Shyam Pawar 54 Taxmann.com 108,PCIT vs Ziauddin A.Siddique in ITA No.2012 of 2017,CIT vs Jamna DeviI Agrawal 20 Taxmann.com 529.Further, reference has also been made to the decision of hon’ble Apex Court in Adamine Construction P.Ltd 99 Taxman 45. P a g e | 9 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora 6.4 With regard to the estimated addition u/s 69C, the ld.AR has contented that provisions of section incurrence of an expenditure. The AO has not placed any evidence or basis to say that the it in fact incurred some expense of 2% of the sale proceeds to enter into the alleged accommodation transaction. It has been merely presumed by him that some such expense may have been incurred without making any reference to any record or findings or entries. He made the addition on the premise of some matters referred to in the statements of Shri Naresh Jain and his associates who have not made any direct or indirect reference to the assessee or any person or entity associated with it in their statements. 6.5 In that light of above contentions, it is argued that in absence of tangible basis to suggest that some such expense was in fact incurred the rigours of section 69C are uncalled for in the case. Moreover, where the very basis of addition u/s.68 are in question, such directly relatable and impugned expenses cannot be subjected to addition u/s.69C of the Act. Hence, the addition u/s.69C of Rs. 1,25,504/- is bad in law and must be set aside. 7. We have carefully considered all the relevant facts of the case. It appears to us that both the lower authorities have heavily relied on a generalized report of the Investigation wing and failed to take note of the P a g e | 10 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora evidences submitted by the assessee in support of the contention that he was an investor having invested in various scrips from time to time for last several years and made all the transactions on platform of BSE through registered broker and also through banking channels. Shares were credited to the demat account though of the broker. Nothing has been brought on record by the AO to specifically demonstrate that the assessee in any manner colluded with price manipulators for money laundering purposes. The ld.AO has not taken due consideration of its contentions in correct perspective but appears to have been swayed away with the Investigation wing report and the statements of third party. Apparently, no independent enquiry appears to have been made by him in this regard as well. On the other hand, the ld.CIT(A) has merely relied on findings of the AO. 7.1 We further find that the report prepared by Investigation Wing, is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. We notice that the AO has placed reliance on the said report, without bringing any material on record to show that the transactions entered by the assessee were found to be a part of manipulated transactions, i.e., it was not proved that the assessee has carried out the transactions of purchase and sale of shares in connivance P a g e | 11 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora with the people, who were involved in the alleged rigging of prices. We also notice that - a) the assessee has purchased these shares by paying consideration through banking channels. b) the shares have been purchased on online platform of stock exchange. c) the shares have been later dematerialised and kept in the Demat account although of the Broker who is registered with SEBI. d) the assessee has sold the shares through stock exchange platform. e) the assessee has received the sale consideration through banking channels. 7.2 We further notice that both the authorities have not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Besides, the AO has not brought on record any material to show that the assessee was part of the group, which involved in the manipulation of prices of shares. Hence, there is no reason to suspect the purchase and sale of shares undertaken by the assessee. The investigation report nowhere named the assessee and the entire allegations were based on surmises and conjectures only. Moreover, authorities below failed to establish any money trail involved in the transaction. 7.3 Considering the above discussion, the facts on record and the legal position emerging out of catena of decisions of various courts of law on similar issue decided in favour of the assessees, we hold that the P a g e | 12 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora addition made by the AO is devoid of any merit. The documentary evidences could not be rejected without bringing on record any substantial piece of evidence. Thus, we have no hesitation is setting aside the appellate order. The AO is therefore, directed to delete the addition made. Moreover, the ad hoc addition u/s 69C being consequential only, the AO is directed to delete the same as well. As a result, ground nos. 2 to 6 on merits are allowed. 8. Since all the additions have already been deleted in the preceding para above, we do not see any need for further adjudication on the legal ground pertaining to reopening u/s 147 of the Act which is however, kept open. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 26.05.2025. Sd/- Sd/- SANDEEP GOSAIN PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER) Place: म ुंबई/Mumbai ददनाुंक /Date 26.05.2025 Lubhna Shaikh / Steno आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to : P a g e | 13 ITA No. 3394/Mum/2024 A.Y. 2012-13 Kashyap M. Vora 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अयिकरण/ ITAT, Bench, Mumbai. "