SANGEETA DEVI JHUNJHUNWALA V. CIT INTL. TAX- 2, NEW DELHI

ITA/591/2023

AI Insights

The case involves Sangeeta Devi Jhunjhunwala, the appellant, who challenged the orders of the ITAT regarding the disallowance of her claim for exemption under Section 10(38) of the Income Tax Act, 1961, related to long-term capital gains from the sale of shares of HPC Biosciences Limited. The ITAT and the Commissioner of Income Tax (Appeals) found that the transactions lacked genuine substance and were merely a facade to achieve tax exemptions. The appellant's arguments, including her exoneration by SEBI regarding price manipulation, were not sufficient to convince the court, which upheld the findings of the lower authorities based on the evidence of sham transactions and the financial irregularities of the company involved.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 756190 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 06-05-2024
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, SEBI Act and Rules
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: PUNEET RAI; RISHABH NANGIA; ASHVINI KUMAR; NIKHIL JAIN
• Assessee Lawyers: RAJIV SAXENA
• Keywords: Income Tax; Income tax appellate tribunal; Long Term Capital Gain; Price manipulation; Securities and Exchange Board of India; Sham transactions
• Section: 10(38); 15-I

Judgement Text

"$~23 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 591/2023 & CM APPL. 54710/2023 (Stay) SANGEETA DEVI JHUNJHUNWALA ..... Appellant Through: Mr. Rajiv Saxena, Adv. versus CIT INTL. TAX- 2, NEW DELHI ..... Respondent Through: Mr. Puneet Rai, SSC along with Mr. Rishabh Nangia, Mr. Ashvini Kumar, SCs and Mr. Nikhil Jain, Adv. CORAM: HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV O R D E R % 06.05.2024 1. The appellant impugns the orders dated 18 May 2023 and 03 August 2023 passed by the Income Tax Appellate Tribunal [„ITAT‟] and proposes the following questions of law for our consideration:- “a. Whether the Hon‟ble ITAT erred in law as well on facts in confirming the disallowance of claim of exemption under Section 10(38) of the Income Tax Act, 1961 pertaining to Long Term Capital Gain merely on the ground of suspicion, assumption and surmises, without making any specific enquiry against the Appellant? b. Whether the Hon‟ble ITAT is justified in not considering the Order dated 6th September, 2017 passed by the Securities and Exchange Board of India specifically exonerating the Appellant‟s involvement in price manipulation of the shares? c. Whether the Hon‟ble ITAT was justified in confirming the addition made by the Respondents solely relying on a general investigation by the Directorate of Investigation, Kolkata and in absence of any contrary evidence to corroborate the transactions as sham transactions of purchase through proper banking channels and sale of these shares also through Appellant‟s D-MAT account? This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/05/2024 at 11:21:54 d. Whether the Hon‟ble ITAT was justified in treating offline purchase of preferential shares as not genuine even when these shares were subsequently listed in the Stock Exchange and sold after dematerializing them?” 2. The issue itself arises out of the sale and purchase of shares pertaining to HPC Biosciences Limited and the long term capital gains claimed in respect thereof. 3. While dealing with the aforesaid aspect, the ITAT while upholding the view taken by the Commissioner of Income Tax (Appeals) [‘CIT(A)’] in its impugned order dated 18 May 2023 has observed as follows:- “12. The explanation of the assessee did not convince the Ld. CIT(A) who observed inter alia in para 5.8 of the appellate order that only the form of the transactions is existing which has been done by creating the necessary documents. However, the financial result of M/s. HPC Biosciences Limited do not justify such steep escalation in the price of its shares. Therefore, the Ld. AO has looked into the real nature of transactions and the intention behind undertaking the impugned transactions. We are inclined to agree with the approach of the Ld. AO/CIT(A). We observe that when the Ld. AO confronted the assessee with the modus operandi adopted by the assessee through chart flow diagram and graph to have huge credits in the shape of sale of shares by using the shares of penny stock company, the assessee could not explain why did she invest in such scrip without knowing the financial performance of the company. These factors among others enabled the Ld. AO to reach the conclusion that the assessee entered into sham transactions to convert her unaccounted cash in the garb of exempt long term capital gain. The Ld. DR brought to our notice the results of enquiry conducted by the SEBI in the case of M/s. HPC Biosciences Limited and pointed out that vide order dated 22.12.2020 the company was restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for eight years. Further vide order dated 25.02.2022 SEBI held the company guilty of unfair trade practices and imposed penalty of Rs. 25 lakhs for violation of various provisions of SEBI Act and Rules. Again vide order dated 22.04.2022 under section 15-I of SEBI Act, SEBI imposed a further penalty of Rs. 20 lakhs upon the company and its directors/key persons for preferential allotment of shares just prior to filing of prospectus for IPO on 13.01.2013 in violation of extant rules and regulations etc. We, therefore, endorse the findings of the Ld. CIT(A) recorded by him in para 5.25 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/05/2024 at 11:21:54 (extracted above) of his appellate order. xxxx xxxx xxxx 15. It is, thus obvious that it is not a case in which there was no independent application of mind by the Ld. AO as alleged by the assessee. The Ld. AO did not accept the explanation offered by the assessee as satisfactory on the basis of proper appreciation of material and other attending circumstances available on record. The assessee, in our humble opinion utterly failed to discharge successfully the onus which lay upon the assessee to prove the genuineness of the transaction. Merely because the transaction is through account payee cheque alone which is the strongest plea of the assessee cannot convert a non-genuine transaction into a genuine transaction. 15.1 Nothing has been done by the assessee except filing the details of the transaction and making a bald plea that transaction has been done as a normal prudent person. However, even this plea is contrary to facts brought on record by the Revenue. The assessee did not consider the business activity of the company M/s. HPC Biosciences Limited, its financials and its creditability.” 4. On a due consideration of the aforesaid, we find that the appeal fails to raise any substantial question of law which may warrant further consideration. While it is true that the Securities and Exchange Board of India did not levy any ultimate penalties upon the appellant, the same would clearly not detract from the nature of the transactions which were found in that inquiry and appear to have been taken into consideration by the Assessing Officer. 5. On an overall conspectus of the aforesaid, we find no merit in the instant appeal and see no reason to interfere with the impugned orders of the ITAT. The appeal shall consequently stand dismissed on the aforesaid terms. YASHWANT VARMA, J. PURUSHAINDRA KUMAR KAURAV, J. MAY 06, 2024/RW This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/05/2024 at 11:21:54 "