PINKI JATANLAL DAGA,SURAT V. ITO, WARD 1(3)(1), SURAT

ITA 511/SRT/2024

AI Insights

The case involves Pinki Jatanlal Daga, the appellant, who contested the additions made to her income by the Income Tax Officer, Ward-1(3)(1), Surat, which were upheld by the NFAC. The additions were made following the reopening of her assessment for the year 2012-13, based on the sale of shares of 'Twenty First Century (India) Ltd.', identified as a penny stock. The Assessing Officer treated the long-term capital gains from these shares as unexplained cash credits and also made additions based on discrepancies in reported salary income. The Tribunal, after considering the submissions and evidence provided by the appellant, including the long holding period of the shares and the transactions being conducted through a registered broker on a recognized stock exchange, found merit in the appellant's arguments and deleted the additions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 106864 (ITAT-SURAT)
• Duration Of Justice: 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Next Hearing Date: 01-10-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 01-05-2024
• Other Referred Cases: PCIT Vs Swati Bajaj, PCIT Vs Mamta Rajivkumar Agarwal, PCIT Vs Renu Agarwal, PCIT Vs Krishna Devi, Vikram N Chandan Vs ITO, Himani M. Vakil, Parasben Kasturchand Kochar, PCIT Vs Indravadan Jain, HUF
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: RAMESH MALPANI
• Keywords: Corroborative evidences; Unexplained cash credit; Salary income; Capital Gains; TDS; Search and seizure; Wrong claim; Bogus
• Section: 147; 148; 144; 143(2); 153; 68

Judgement Text

"आयकर अपीलीय अिधकरण, सुरत Ɋायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT “SMC” BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER आ.अ.सं./ITA No.511/SRT/2024 (AY 2012-13) (Physical Hearing) Pinki Jatanlal Daga, A-805-806, Megh Malhar Apartment, Bhatar Char Rasta, Surat-395001 [PAN No: AAJPD 4514 H] बनाम Vs Income Tax Officer, Ward-1(3)(1) [Old Ward- 1(3)(4)] Aaykar Bhavan, Anavil Business Center, Adajan Surat-395009 अपीलाथŎ/Appellant ŮȑथŎ /Respondent िनधाŊįरती की ओर से /Appellant by Shri Ramesh Malpani, CA राजˢ की ओर से /Respondent by Shri Mukesh Jain, Sr-DR अपील पंजीकरण/Appeal instituted on 01.05.2024 सुनवाई की तारीख/Date of hearing 01.10.2024 उद ्घोषणा की तारीख/Date of pronouncement 17.10.2024 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC/Ld. CIT(A)”] dated 30.05.2023 for assessment year 2012-13, which in turn arises out of assessment order passed by the Assessing Officer under section 144 r.w.s.147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 10.12.2018. The assessee has raised the following grounds of appeal: “1) That on the facts and in the circumstances of the case as well as in law, the ld CIT(A), (NFAC) has erred in upholding proceedings u/s 147 / 148 of the Act, whereas the whole of the proceedings u/s 147/148 of the I.T. Act,1961 (the Act) in the case of appellant and consequent assessment order passed u/s 144 r.w.s 147 of the Act are wrong, invalid, unjustified, bad-in-law and beyond the law. Appellant prays for quashing the same. 2) That on the facts and in the circumstances of the case as well as in law, the ld CIT(A), (NFAC) has erred in upholding the assessment order passed u/s 144 r.w.s. 147 of the Act, whereas assessment order passed by learned AO u/s 144 r.w.s. 147 of the Act is wrong, invalid, unjustified, bad-in-law and beyond the law. Appellant prays for quashing the same. ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 2 3) That on the facts and in the circumstances of the case as well as in law, the ld CIT(A) has erred in sustaining the addition of Rs.11,33,225 u/s 68 of the Act by wrongly assuming the bona fide and genuine gross sales amount of 3500 Equity Shares of the Company ‘Twenty First Century (India) Ltd.’ sold on the platform of stock exchange after holding the same for seven years. As unexplained cash credit. Addition so made is grossly wrong and unjustified on facts as well as in law. Appellant prays for deleting the same. 4) That on the facts and in the circumstances of the case as well as in law, the ld CIT(A) has erred in directing the ld. AO to verify correct salary income as per Form No.26AS, whereas ld. AO has clearly made wrong addition of Rs.4,45,000/- in the name of undisclosed salary by incorrectly reading the salary and TDS amount in Form No.26AS twice. 5) That on the facts and in the circumstances of the case as well as in law, the ld CIT(A) has erred in sustaining the charging of interest u/s 234B/234C/234D of the Act in respect of the wrong, unjustified and unlawful additions made in the assessment order. Appellant prays ford deleting the interest so charged. 6) Appellant craves leave to add, alter delete or modify any ground of appeal.” 2. At the outset of hearing, Ld. Authorized Representative (Ld.AR) for the assessee submits that he is not pressing Ground Nos. 1 and 2 of the appeal. Considering the submission of Ld. AR of the assessee, Ground Nos 1 and 2 are dismissed as “not pressed”. 3. Brief facts of the case, qua remaining grounds of appeal are that assessee is an individual and deriving her income from salary, house property income and capital gains. The assessee filed her return of income for assessment year 2012-13 on 31/07.2012 declaring income of Rs.1,75,040/-. The case of assessee was reopened by issuing notice under section 148 on 30.03.2018 after recording reasons that assessee has sold shares of “Twenty First Century (India) Ltd., which is a penny stock. The Assessing Officer recorded reasons of reopening issued notice under section 148 of the Act, as issuance of notice under section 148 and recording of reasons under section 147 of the Act is not pressed by ld AR of the assessee. Therefore, such facts are not discussed ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 3 herein. During assessment, the Assessing Office noted the assessee has also shown long-term capital gains (LTCG) of Rs.10,43,750/- on sale of listed share Twenty First Century (India) Ltd. The assessee claimed exemption of LTCG under section 10(38) of the Act. The Assessing Officer issued show-cause notice to the assessee to substantiate her transactions along with supporting documents and as to why sale of Twenty First Century (India) Ltd should not be treated as unexplained cash credit. For doubting the transaction of assessee by the Assessing Officer further was that as per data available with him, in his system was that Twenty First Century (India) was a penny stock company, which was utilised by entry provider. The Assessing Officer further noted that the assessee has received salary of Rs.8,50,000/- on which Tax Deducted at Source (TDS) of Rs. 34,923/- was deducted. However, assessee has shown salary income of Rs.4,55,000/- only and claimed deduction of Rs.17,467/-. Thus, the difference amount of salary was proposed for addition. The Assessing Officer recorded that despite service of notice, the assessee has not furnished any reply / explanation. In absence of explanation and supporting evidence by assessee, the Assessing Officer treated the LTCG of Rs.11,33,25/- as unexplained cash credit. The Assessing Officer also made addition of Rs.4,55,000/- on account of mis-match in Form No.26-AS data and treated the same as undisclosed income while passing the assessment order passed under section 144 r.w.s. 147 of the Act on 10.12.2018. 4. Aggrieved by the addition made in the assessment order, assessee filed appeal before ld. CIT(A). Before Ld. CIT(A) assessee filed detailed statement of fact as well as written submission. In the statement of fact, assessee stated that ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 4 assessee purchased share of ‘Twenty First Century (India) Ltd.’ in financial year 2004-05 and sold during the year under consideration i.e., assessment year 2012-13. The assessee was sold after holding the scrips for seven years. The assessee sold share of his stock in market when it was very high. The assessee sold share on platform of Stock Exchange through Stock Exchange registered share broker. Security Transaction Tax (STT) was paid on sale of these shares. The assessee claimed exemption under section 10(38) of the Act. Against the allegation of Assessing Officer that no response or reply was filed to various show cause notices, the assessee submitted that neither any show-cause notice during assessment was received nor notice under section 143(2) of the Act or reasons recorded were received by assessee. The assessee in response to notice under section 148 of the Act filed her return of income on 26.04.2018 and was waiting for reasons recorded. Neither the reasons recorded was provided by the Assessing Officer nor he issued notice under section 143(2) of the Act. The assessee also explained that sole reasons for reopening was information received from DGIT (Inv.) Ahmedabad that assessee made transaction (sale of penny stock of ‘Twenty First Century (India) Ltd.’ as per information of Investigation Wing that shares were artificially raised on stock exchange in order to book bogus claim of LTCG. The Assessing Officer not made any independent enquiry or verification of fact. The assessee purchase equity shares in financial year 2004-05 and sold after seven years and such long period itself proved the bona fide of the transactions the shares were purchased through registered broker on the platform of stock exchange on 17.11.2004. The payments were made through account payee cheque. The ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 5 shares were held by assessee in demat account for several years. The same was sold on a platform of recognized stock exchange through SEBI registered broker and delivery of shares were given from demat account. The assessee received gross amount of Rs.11,33,225/- and after deducting brokerage and other charges, the assessee received net amount Rs.11,31,012/- through banking channel as per procedure of stock exchange. The assessee sold the shares on prevailing market rate after holding for seven years, which cannot be treated as shame transactions or transaction of penny stock. The assessee further explained that as per allegations in reasons recorded that shares of TFC were acquired through preferential allotment i.e. off market transaction or by way of amalgamation or merger and once, one year has passed, the shares price was rigged and beneficiaries sold their shares. The assessee has not received or acquired through preferential allotment or in off market transaction or by way of amalgamation or merger of companies or shares of TFC. The holding period of assessee is very long. On the addition of Rs.4,55,000/- on account of mismatch in Form-26AS, the assessee stated that assessee received total salary of Rs.4,25,000/- on which TDS was deducted at Rs. 17,467/-. The assessee stated that it appears that Form-26AS, the Assessing Officer considered the amount as twice. Thus, the addition is factually incorrect. 5. The ld CIT(A) on considering the submission of the assessee held that the office of DIT (investigation) Kolkata carried out search and seizure action in the officer premises of various entity, who were managing the penny stock companies actively involved in bogus transaction of long-term capital gain or ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 6 short-term capital gain. Survey was also carried out at the premises of accommodation entry providers. Beneficiary of such entries were also identified by investigation wing about the shares of Twenty First Century (India) Limited. The prices were rigged to provide LTCG. Price of shares were rigged up to desired level within in a period of one year. No dividend was declared in financial year 2009-10 to 2012-13. During December 2011 to August 2013 the share market was flat and investment has not peered any gain but the price of Twenty First Century (India) Limited were increased even without any fundamentals which is beyond imagination. On the basis of aforesaid observation and by referring various decisions of Higher Courts confirmed the action of assessing officer just on the basis of investigation report of department. The ld CIT(A) specifically relied on the decision of Calcutta High Court in PCIT Vs Swati Bajaj (2022) 446 ITR 56 (Cal). On the addition of difference of salary income vis a vis the income offered by the assessee and reflected in Form-AS-26. The ld CIT(A) held that prima facie it appears that there is mismatch in the Form No. AS-26 as per data available with Assessing Officer and as claimed by the assessee. The ld CIT(A) directed to verify the correct salary as per Form AS-26 and tax correct salary income. Further aggrieved, the assessee has filed present appeal before this Tribunal. 6. I have heard the submissions of the learned authorised representative (AR) of the assessee and the learned Senior departmental representative (Sr DR) of the revenue. With their assistance, I have also perused the orders of lower authorities. The ld AR of the assessee submits that the assessee purchased ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 7 share of ‘Twenty First Century (India) Ltd.’ in financial year 2004-05 and sold in assessment year 2012-13, after holding the scrips for seven years. The assessee sold share of his stock in market when it was very high. The assessee sold shares through Stock Exchange registered share broker. STT was paid on sale of these shares and claimed exemption under section 10(38) of the Act. Such long period of holding cannot be considered as a transaction of penny stock. Sole reasons for reopening was information received from DGIT (Inv.) The Assessing Officer not made any independent enquiry or verification of fact. The assessee purchase equity shares in financial year 2004-05 and sold after seven years and such long period it is proved the bona fide of the transactions the shares were purchased through registered broker on the platform of stock exchange on 17.11.2004. The payments were made through account payee cheque. The shares were held by assessee in demat account for several years. The same was sold on a platform of recognized stock exchange through SEBI registered broker and delivery of shares were given from demat account. The assessee received gross amount of Rs.11,33,225/- and after deducting brokerage and other charges received Rs.11,31,012/-only, through banking channel as per procedure of stock exchange. The assessee sold the shares on prevailing market rate after holding for seven years, which cannot be treated as shame transactions or transaction of penny stock. The ld AR of the assessee further submits that that as per material available with Assessing Officer and as communicated to the assessee beneficiaries of penny stock acquired shares of TFC through preferential allotment i.e. off market transaction or by way of amalgamation or merger and once one year has passed, the shares price was ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 8 rigged and beneficiaries sold their shares. The assessee has not received or acquired through preferential allotment or in off market transaction or by way of amalgamation or merger of companies or shares of TFC. The holding period of assessee is very long. There is no allegation or evidence on record that the broker of assessee was involved in price rigging. There is no adverse report of SEBI against the company of its official. When the purchase as well as sale of scrips were on the stock exchange and payments were made and received through banking channel and STT was paid, such transaction cannot be considered as shame transaction. The ld AR of the assessee submits that he has already filed complete record of purchase of 3500 shares of Twenty First Century (India) Limited, which include contract notes of purchase, though SEBI registered broker, proof of payment by account payee cheques, D-Mat account, contract note of sale with bank statement evidencing the payment received through banking channel. Against the allegation of Assessing Officer that no response or reply was filed to various show cause notices, the assessee submitted that neither any show-cause notice during assessment was received nor notice under section 143(2) of the Act or reasons recorded were received by assessee. To support all his submissions, the ld AR of the assessee relied on the following decisions;  PCIT Vs Mamta Rajivkumar Agarwal (2023) 155 taxmann.com 549 (Guj),  PCIT Vs Renu Agarwal (2023) 153 taxmann.com578 (All-HC),  PCIT Vs Krishna Devi (2021) 126 taxmann.com 80 (Delhi),  Vikram N Chandan Vs ITO (2024) 165 taxmann.com 340 (Mumbai-Trib) 7. On the other hand, Ld. Sr-DR for the Revenue submits that investigation wing of revenue carried out search and seizure action in Kolkata on the office ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 9 premises of various entity, who were managing the penny stock companies, actively involved in bogus transaction of long-term capital gain or short-term capital gain. Survey was also carried out at the premises of accommodation entry providers, during investigation beneficiary of such entries were also identified by investigation wing. Twenty First Century (India) Limited is one of the penny scrips, which was identified by investigation wing. The prices of such penny scrips were rigged to provide LTCG. Price of shares were rigged up to desired level. No dividend was ever declared by such penny scrips company. The financial credential of such penny scrips are very poor. Investigation report of DDIT is sufficient evidence that Twenty First Century (India) Limited is involved in penny stock. To support of his submissions, the ld Sr DR of revenue relied on the decision of Calcutta High Court in PCIT Vs Swati Bajaj (supra). 8. I have considered the submissions of both the parties and have gone through the orders of lower authorities carefully. I have also deliberated on the various case laws relied by the parties. From the evidence available on record, there is no dispute that the assessee purchased 3500 shares of Twenty First Century (India) Limited on 17.11.2004 i.e. in AY 2004-05 and sold during the assessment year under consideration, thus, the holding period of scrips are of seven years. The shares were sold though registered broker of Bombay Stock exchange. The payment of purchase as well as sale was made through banking channel. The assessee paid STT on the sale of such shares. There is no allegation of Assessing Officer that the broker of assessee was involved in price rigging of these shares. I find that before ld CIT(A) the assessee has furnished complete details of his transaction to prove the genuineness of the transaction ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 10 and the period of holding. No independent investigation of facts is carried out by LD CIT(A), nor any adverse comment were given on such evidences. The ld CIT(A) has co-terminus power of Assessing Officer. The Assessing Officer during assessment and the ld CIT(A) relied on the report of investigation wing. 9. I find that Hon'ble jurisdictional High Court in the case of Himani M. Vakil [2014] 41 taxmann.com 425 (Guj)/[2014] 221 Taxman 140 (Guj)(Mag.) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. I further find that Hon'ble jurisdictional High Court in the case of Parasben Kasturchand Kochar (2021) 130 taxmann.com 176 (Guj), also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished by Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. In a recent decision in PCIT Vs Mamta Rajiv Kumar Agarwal (2023) 155 taxmann.com 549 (Gujarat) also held that where the assessee had sold the shares and earned LTCG and the Assessing Officer alleged that transaction was penny stock deal aim at illegitimately claiming LTCG exemption under section 10(38), since there was no allegation on record suggesting the assessee or his broker involved in rigging up the price of scrips, the addition was rightly deleted by Tribunal. ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 11 Further I find of Hon'ble Bombay High Court in the case of PCIT Vs. Indravadan Jain, HUF (supra) in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction. 10. The ld Sr DR for the revenue while making his submissions strongly relied on the decisions of Kolkata High Court in Swati Bajaj (supra), which is non- jurisdictional High Court, though there are contrary decisions of Jurisdictional High Court as referred above, favouring assessee. Hon’ble Apex Court in Union of India Kamalakshi Finance Corporation Ltd (1991) (55) ELT 443-SC held that decision of jurisdictional High Court would have higher precedence value on the Tribunal than the decision of non-jurisdictional High Court. 11. I may repeat here that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, I do not find any justification in treating the LTCG as unexplained cash credit under section 68, particularly when the holding period of such scrips are of seven years. In the result, the addition of undisclosed income under section 68 is deleted. In the result, ground No. 3 of appeal is allowed. 12. Ground No. 4 of the appeal relates to addition of Rs. 4,45,000/- on account of difference in salary income. The Assessing officer made addition by taking view that as per data of Form AS-26, the assessee has received salary of Rs. ITA No.511/SRT/2024 (A.Y 12-13) Pinki Jatanlal Daga 12 8,50,000/-, the assessee has offered Rs.4,05,000/- and has not offered complete salary for taxation and thus made addition of Rs.4,45,000/- on account of difference in salary income. The ld CIT(A) has already held that addition on the basis of Form 26-AS is factually wrong. I find that assessee has placed on record, copy of Form 26-AS wherein the total amount of salary is only of Rs.4,05,000/- only. Thus, there is no mismatch in the salary offered by assessee, thus, the Assessing Officer is directed to delete the addition of Rs.4,45,000/-. In the result, Ground No.4 is allowed. 13. Ground No. 5 is consequential and needs no adjudication. 14. In the result, the appeal of the assessee is partly allowed. Order pronounced in open court on 17/10/2024. Sd/- (PAWAN SINGH) [Ɋाियक सद˟ /JUDICIAL MEMBER] सूरत /Surat, Dated: 17/10/2024 SAMANTA आदेश कȧ ĤǓतͧलͪप अĒेͪषत/ Copy of the order forwarded to :  अपीलाथȸ/ The Appellant  Ĥ×यथȸ/ The Respondent  आयकर आयुÈत/ CIT  आयकर आयुÈत (अपील)/ The CIT(A)  ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय आͬधकरण, सूरत/ DR, ITAT, SURAT  गाड[ फाईल/ Guard File By order/आदेश से, // TRUE COPY // सहायक पंजीकार आयकर अपीलȣय अͬधकरण, सूरत "