RAMACHANDRAN,CHENNAI V. ACIT, NON COPORATE CIRCLE-2, CHENNAI

ITA 775/CHNY/2023

AI Insights

The case revolves around an appeal by Ramachandran against the order of the CIT(A), which confirmed the addition of Rs.4,02,07,850 to his income for the assessment year 2015-16. This addition was initially made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, following suspicions raised by the Special Investigating Team (SIT) regarding the misuse of exemption on long-term capital gains for money laundering. The AO and CIT(A) both relied on reports from the SIT and the Directorate of Investigation, Kolkata, which indicated that the shares were part of a scheme involving penny stocks used for laundering money. The Tribunal dismissed the appeal, agreeing with the lower authorities that the assessee did not provide adequate documentation to prove the legitimacy of the transactions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 46349 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-07-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 28-06-2023
• Other Referred Cases: Swati Bajaj vs. PCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: Y. SRIDHAR; F
• Keywords: Capital Gains; Earning of tax free income; Share purchase agreement; Revision of order; Penny stocks; Bogus
• Section: 263; 68

Judgement Text

"आयकर अपीलीय अधिकरण, ‘‘ए’/ ‘बी’/ ’सी’/ ’डी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI श्री मनु क ुमार गिरि, न्यागिक सदस्य एवं श्री अमिताभ शुक्ला, लेखा सदस्य क े समक्ष BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.775 /Chny/2023 निर्ाारण वर्ा /Assessment Year: 2015-16 Ramachandran Old No.9, New No.19, Jumaulingam Street, Mylapore, Chennai-600004 Vs. The Asst. Commissioner of Income Tax, Non-Corporate Circle-2 Chennai [PAN: AAQHR6150N] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Appellant by : Shri Y.Sridhar, F.C.A. प्रत्यर्थी की ओर से /Respondent by : Ms.Gouthami Manivasagam, JCIT सुिवाई की तारीख/Date of Hearing : 31.07.2024 घोर्णा की तारीख /Date of Pronouncement : 23.10.2024 आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed against the order bearing DIN & Order No.ITBA/NFAC/S/250/2023-24/1053343791(1) dated 31.05.2023 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Center[NFAC], Delhi, for the assessment years 2015- 16. Through the aforesaid appeal the assesse has challenged order u/s 250 dated 31.05.2023 passed by NFAC, Delhi. ITA No.775/Chny/2024 :- 2 -: 2.0 The only issue arising from the grounds of appeal Nos. 2 to 9 raised by the assesse are in respect of an addition of Rs.4,02,07,850/- made by the assessing officer invoking provisions of section 68 and which has been confirmed by the Ld.CIT(A). All the grounds of appeal, save ground of appeal no.1 which is general in nature, are being adjudicated together in view of a common issue. The Ld. Counsel for the assesse submitted that its case was selected for complete scrutiny on account of suspicious sale transaction in shares of the penny stocks. The brief factual matrix emanating from the assessment order dated 31.12.2017 is that the assessing officer has made the addition by relying upon observations of the Special Investigating Team(SIT) on black money which was formed to examine misuse of exemption on long term capital gains for money laundering. The Ld. AO had issued summons and recorded sworn statement of the assesse on 28.12.2017. As per para-15 of the Ld. AO’s order dated 31.12.2017, the assesse could neither produce physical share certificates to evidence purchase of shares nor any bank statement for its purchase in 2011 and even failed to even tell the name of the person from whom the purchases were made. The said shares were reportedly dematerialized in Feb-2014 which ITA No.775/Chny/2024 :- 3 -: therefore does not confirms to the mandatory period of holding of 12 months. The assesse had not disclosed any sale purchase of shares in his return and only shown an exempt income of Rs.4,02,07,850/- in ITR V. The Ld. AO noticed that the assesse had not traded any shares in FY-2012-13 and 2013-14 and in FY 2014-15. The Ld. AO thus concluded that the shares of KAPPAC (one of the penny stock companies reportedly used for proving bogus entries) were purchased only during FY 2014-15 and the assesse had sold it in the same year. This fact was supported by annexure-v submitted by the assesse to its sworn statement suggesting that share of KAPPAC were held for less than 12 months. The Ld. AO therefore concluded that the facts and circumstances surrounding the abrupt rise in the price of shares itself alluded towards a sinister design to defraud the revenue. While making the impugned addition, the Ld. AO also relied upon the investigation report prepared by the Directorate of Investigation, Kolkata in the case of 84 companies listed on BSE and identified as penny stock companies. As per para-4 of AO’s order KAPPAC pharma limited was once such penny stock company and the name and PAN no. of the assesse was figuring in the list of beneficiaries. The Ld. CIT(A) confirmed the action of the assessing officer. While doing so, the recorded in para-6.2 of his order that the assesse had ITA No.775/Chny/2024 :- 4 -: declared long term capital gains u/s 10(38) of Rs.4,02,07,850/- in respect of 125000 shares of KAPPAC pharma limited. The Ld. First Appellate Authority placed reliance upon the SIT report as well as investigation conducted by Directorate of Investigation Kolkatta and finally relying upon the decision of Hon’ble Kolkata High Court in the case of Swati Bajaj 139 taxman.com 352 confirmed AO’s addition. In the said case Hon’ble Kolkata High Court had confirmed revisionary powers of PCIT u/s 263 in respect of assessment order which was passed without making due addition by the AO’s ignoring the investigation in penny stock’s scam. 3.0 The Ld. Counsel for the assesse submitted through documents provided in its paper book that the sale purchase of shares were made through banking channels and due entries were made in the demat account. The assesse also provided copy of trading ledger account of one M/s.Aryan share brokers Ltd. The Ld. DR vehemently placed reliance upon the action of the ld.AO and the First Appellate Authority. It was argued that the hypothesis propounded by the Ld. AO in his order regarding inability of the assesse to furnish required documents could not be countered by the assesse. It was urged that ITA No.775/Chny/2024 :- 5 -: the AO has done his own independent enquiries also and applied mind before making the impugned addition. 4.0 We have heard rival submissions in the light of material available on records. The case of the assesse that AO has not done any enquiries before making the impugned addition is not made out from the facts on records. The assesse before the AO could not produce the requested documents. The facts surrounding the case therefore confirms the hypothesis raised in the SIT report. The report of investigation directorate indicates mention of assesse’s name and PAN No. Before the AO, the assesse has not been able to satisfactorily establish its case through demonstrative evidence. Accordingly, we are of the view that the order of the Ld. AO and the First Appellate Authority are in order and do not require any interference at this stage. Accordingly, the order of Ld. First Appellate Authority is confirmed and the grounds of appeal No. 2 to 9 raised by the assesse are dismissed. ITA No.775/Chny/2024 :- 6 -: 5.0. In the result, the appeal filed by the assessee is dismissed. Order pronounced on 23rd , October, 2024. Sd/- Sd/- (मनु क ुमार गिरि) (Manu Kumar Giri) न्याययक सदस्य / Judicial Member (अमिताभ शुक्ला) (amitabh shukla) लेखा सदस्य /Accountant Member चेन्नई/Chennai, ददनाांक/Dated: 23rd , October, 2024. KB/- आदेश की प्रयिललपप अग्रेपिि/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai 4. विभागीय प्रविविवि/DR 5. गार्ड फाईल/GF "