SHRI ANILKUMAR M. JAIN,AHMEDABAD V. THE ACIT, CIRCLE-5(2), AHMEDABAD

ITA 2239/AHD/2018

AI Insights

The case revolves around an appeal by Shri Anilkumar M. Jain against the order of the CIT(A), which upheld the reassessment order passed by the Assessing Officer. The reassessment was based on the claim of exempt long-term capital gain under Section 10(38) of the Income Tax Act, 1961, amounting to Rs.15,74,602 from the sale of shares of Alpha Graphic India Limited. The Assessing Officer, after investigation, concluded that the shares were part of a penny stock scheme used to generate bogus capital gains. The Tribunal dismissed the appeal, agreeing with the lower authorities that the transactions were not genuine and the gains were unaccounted income.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470465 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-09-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 05-11-2018
• Other Referred Cases: MC Dowell & Co. vs. CTO, 154 ITR 148 (SC), 99 ITR 135, 224 ITR 362, CIT vs. M/s. Abhinandan Investment Ltd. dated 19.11.2015 (ITA 130/2001)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KETAKI DESAI
• Assessee Lawyers: DEEPAK SONI
• Keywords: Capital asset; Reopening of assessment; Capital Gains; Principle of natural justice; Accommodation entries; Earning of tax free income; Penny stocks; Bogus
• Section: 147; 148; 143(2); 143(1); 131

Judgement Text

"ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 1 of 8 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Shri Anilkumar M. Jain, 221, Manekbaug Society, Ambawadi, Ahmedabad – 380 015. [PAN – AAXPJ 8826 G] Vs. The ACIT, Circle – 5(2), Ahmedabad. (Appellant) (Respondent) Assessee by Shri Deepak Soni, AR Revenue by Ms. Ketaki Desai, Sr. DR Date of Hearing 26.09.2024 Date of Pronouncement 14.10.2024 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER: This appeal is filed by the Assessee against order dated 12.09.2018 passed by the CIT(A), Ahmedabad-5 for the Assessment Year 2012-13. 2. The assessee has raised the following revised grounds of appeal:- “1.0 The CIT(A)-5 erred in upholding validity of the order passed by the Assessing Officer. The order is contrary to the provisions of law and the facts of your appellant's case. The order passed by the Assessing Officer be cancelled and/or suitably modified. 2.0 The CIT(A)- erred in upholding addition of Rs.15,74,602/- alleging unexplained and unaccounted cash receipt through bank entry. The appellant submits that source of Rs.15,74,602/- was completely explained and it was capital gain on transfer of long term capital asset and was entitled to exemption u/s.10(38) of the Income tax Act, 1961. The appellant submits that it be so held now. 2.1 The appellant submits that modus operandi which has been reflected by the Investment Wings referred to by the Assessing Officer on page no. 17 are general in nature and not applicable to the facts in the case of the ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 2 of 8 appellant because the transaction of purchase and transaction of sale was genuine transaction. 3.0 The CIT(A)-5 erred in upholding action of the Assessing Officer in invoking provisions of Section 147 and framing order of reassessment thereunder. The appellant submits that action under Section 147 is bad in law. The order of reassessment be quashed. 3.1 The CIT(A)-5 ought to have held that the Assessing Officer had erred in issuing notice under Section 148 in the matter of reassessment. The appellant submits that the notice under Section 148 is bad in law. 4.0 The order passed by the CIT(A)-5, Ahmedabad is bad in law and contrary to the facts. The CIT(A) has grossly failed to consider the facts and submissions and his decision is prejudicial and biased. 4.1 The appellant submits that the CIT(A)-5 has not considered facts at all and his observations are untrue. The observations made by him in paras 5.4, 5.5, 5.6, 5.7, 5.8, 5.9 and 5.10 are grossly erroneous and contrary to the facts.” 3. The assessee filed return of income for the Assessment Year 2012-13 on 31.07.2012 declaring total income at Rs.68,96,550/-. The return was processed under Section 143(1) of the Income Tax Act, 1961. The case was reopened under Section 147 of the Act after recording reasons and due approval from the Authorities. Notice under Section 148 of the Act dated 03.03.2017 was issued and served to the assessee The assessee vide letter dated 10.04.2017 stated that return of income filed on 29.03.2017 declaring total income at Rs.68,96,520/- should be taken into account as against the notice under Section 148 of the Act. The assessee requested for the copy of reasons recorded for reopening which was provided to the assessee. In response, the return was filed by the assessee and notice under Section 143(2) of the Act was issued on11.09.2017 which was duly served upon the assessee. The assessee filed objection against the reopening of assessment on 05.06.2017 and the same was disposed of on 11.09.2017. After taking cognisance of the assessee’s reply, the Assessing Officer observed that the assessee claimed exempt Long Term Capital Gain (LTCG) under Section 10(38) of the Act amounting to Rs.15,74,602/- from sale of equality shares of Alpha Graphic India Limited. The Assessing Officer further observed that the all the shares of Alpha Graphic India Limited were sold in the month of March 2014 but the details of purchase was not given to the Assessing Officer during the assessment proceedings as well as the assessee has not appeared before the Assessing Officer even after issuing summon under Section 131 of the Act which ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 3 of 8 was served upon the assessee. The Assessing Officer, after taking cognisance of the reply, made addition of Rs.15,74,602/- for sale consideration shown as received from bogus sale of shares and treated the same as unexplained & unaccounted cash receipts which has been channelised through book entries and banking system. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that the assessee had placed details of share transactions vide letter dated 14.02.2014 before the Assessing Officer. The Assessing Officer has merely relied upon the statement of anonymous third party with whom the assessee never had any relation. The shares in the Alpha Graphic India Limited were held for more than fifteen years and they were allotted in the public issue by the Company and there was no involvement of the assessee in respect of the transactions in the said shares except selling them in July 2011 i.e. during the previous year relevant to the Assessment Year. The Ld. AR mentioned various submissions given by the assessee before the Assessing Officer as well as before the CIT(A). The Ld. AR further submitted that the Assessing Officer as well as the CIT(A) has not taken cognisance of the assessee’s submissions placed before the relevant Authorities and there is no false observation that the assessee was involved in penny stock. The assessee had never traded or was involved in the penny stock. This stock in Alpha Graphic India Limited were acquired by the assessee in public issue in 1996 and sold by the assessee in July 2011. The Ld. AR further submitted that the decision of Hon’ble Supreme Court in the case of MC Dowell & Co. vs. CTO, 154 ITR 148 (SC) is not applicable in assessee’s case. The Ld. AR quoted the citation of the Hon’ble Supreme Court being 99 ITR 135 and 224 ITR 362 and stated that in case of the assessee there is no information or material relating to the assessee at all and it was the proceedings against Alpha Graphic India Limited and there was no incriminating material against the assessee. The Ld. AR further submitted that summons were served after the date fixed for hearing and, therefore, the assessee could not attend. The Ld. AR further submitted that the assessee made investment in shares of Alpha Graphic India Limited in the year 1996 and at the relevant time the assessee was required to make application through Stock Invest issued by Bank. The assessee ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 4 of 8 purchased stock invest and the assessee was allocated 50,000 equity shares in Alpha Graphic India Limited of the face value of Rs.5,00,000/-. The assessee has produced Ledger account of Alpha Stock Invest of Rs.5,00,000/- dated 02.05.1996 and Alpha Share Account showing investment of Rs 5,000/- on 31.03.1999 and 31.03.2017. As per the mandatory requirement of Demat came in force during the Financial Year 2002-03. The assessee converted 50,000 equity shares in Alpha during the previous year ended i.e. 31.03.2003 in the Demat form for which the assessee is showing Demat statement. The assessee sold shares through account payee cheque and deposited in the assessee’s bank account. The Ld. AR submitted that the Assessing Officer as well as the CIT(A) has relied upon the report of Kolkata Investigation Wing and the statement recorded as per SEBI Investigation report and will not be applicable in the assessee’s case in respect of penny stock transaction as the assessee has never dealt with the penny stock transaction. 6. The Ld. DR filed written submissions as under :- “The assessee had filed the return of income for A.Y. 2012-13 on 31.07.2012 declaring total income of Rs.68,96,515/-. The return was processed u/s 143(1) of the Act. Thereafter, the case of the assessee was reopened u/s. 147 of the Act after recording reasons and due approval from higher authorities. A notice u/s 148 of the Act dated 03.03.2017 was issued and served upon the assessee. The assessee vide his letter dated 10.04.2017 stated that the assessee has e-filed his return of income on 29.03.2017 declaring total income at Rs.68,96,520/- against the notice u/s.148 of the Act. The assessee also requested for a copy of reasons recorded for reopening the assessment vide same letter dated 29.03.2017. The same was provided to the assessee vide this office letter dated 09.05.2017. Further, in response to the return filed by the assessee, a notice u/s.143(2) of the I.T. Act was issued on 11.09.2017 which was duly served upon the assessee. Meanwhile, assessee has filed submission and also filed objection against the reopening of assessment vide letter dated 05.06.2017. An order disposing off the objection raised by the assessee was passed on 11.09.2017. In furtherance in this, assessee has submitted submission in dispatch. Thereafter, assessee was summoned vide notice dated 04.12.2017 to attend the office on 11.12.2017 which was duly served upon. On given date no one attended, neither any correspondence was made. Considering the above, it can be deduced that after giving ample opportunities to assessee, no one bothered to attend the office i.e. assessee is non-compliant and non-cooperative with respect to the assessment proceedings. Thus, the assessment order has been passed with the date in hand. As assessee has claimed long term capital gain, exemption u/s.10(38) of the I.T. Act amounting to Rs.15,74,602/- from sale of equity share of ALPHA GRAPHIC INDIA LTD. ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 5 of 8 The preliminary finding of DIT (Inv.), Kolkata has identified a list of penny stock which has been used for generating bogus LTCG. The share of Alpha Graphic India Ltd. Is reflected in this list and therefore, it was established that this share has been used for generating bogus penny stock for accommodating bogus LTCG/LTCL entries. Further, the DIT (Inv.), Kolkata conducted investigation on a project basis which wat resulted into unearthing syndicate entry operators share broker and money launders providing bogus accommodation of LTCG/STCL. The share of Alpha Graphic India Ltd is reflected in this list and therefore, it is established that this share has also been utilized with the sole objective of accommodating unaccounted cash of beneficiaries in to regular books of accounts. Thereafter, this office has investigated further and found that total income of Rs.15.74,602/- being the sale consideration shown as received from the bogus sale of shares is treated as un-explained and un-accounted cash receipt which has been channelized through book entries & banking system as explained & established in order. Accordingly, an order u/s.143(3) r.w.s. 147 of the Act dated 12.12.2017 passed and an income of Rs.15,74,602/- added to total income of the assessee. Aggrieved from the order, assessee has filed appeal before Ld. CIT(A), The Ld. CIT(A) vide order dated 12.09.2018 dismissed the appeal of the assessee. Thereafter, assessee has filed appeal before Hon'ble ITAT and made wrong allegation regarding the proceedings as under; 1. On verification of para 2.1, allegation regarding assessment without satisfaction, in this regard, it has been found that the assessing officer had taken the approval from competent authorities i.e. JCIT at that time. Further, objection regarding reason recorded on the basis of anonymous third party statement, it is regard, it is to be submitted that AO has recorded his satisfaction note and only there after approval was taken from higher authorities. Considering the above, para 2.2 & 2.3 is vague in nature. 2. The assessing officer had issued the notice u/s.143(2) on 11-09-2017 for A.Y. 2012-13 (copy enclosed) and response to the same, assessee has filed adjournment on 26.09.2017 (copy enclosed). Considering the natural justice, adjournment was granted. Thereafter, a reasonable time was given to the assessee for comply, Therefore, the points mentioned in para 2.4 & 2.5 is completely invalid. 3. As per para 3.0, the assessee has submitted that the summon dated 04.12.2017 was received by him on 20.12.2017, but on verification of records, it has been confirmed that the assessee has received the summon on 06.12.2017 well within time. It can be clearly seen that the assessee is trying to manipulate various evidences since the start of proceedings. (Copy enclosed). 4. As per para 2.8 the appellant submitted that he had never traded the stock of Alpha and shares were acquired by him in 1996 in public issue made ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 6 of 8 by said company However, As per findings of the Kolkata investigation wing Alpha India Graphic Ltd is reflected in the list of penny stocks which has been used for generating bogus LTCG. Further, the DIT(Inv.) Kolkata conducted investigation on a project basis which has resulted into unearthing of syndicate entry operators share broker and money launders providing bogus accommodation entry of Long Term Capital Gain/Short Term Capital Loss. As per the report many penny stocks were identified which were listed in BSE and have been used for generating bogus LTCG. Alpha Graphic India Ltd featured amongst them. Thus, it is clear that the assessee has taken bogus LTCG of Rs.15,74,602/- by selling the shares of Alpha Graphics India Ltd. The was also confirmed by Ld. CIT(A) vide his order that in view of the sequence of facts and the modus operandi adopted by the appellant shows that the entire transaction made by him was nothing but accommodation entries taken by him to camouflage his undisclosed income under the grab of capital gains, income from which is exempt income. This is nothing but a colourful device adopted to avoid payment of tax which is not permissible as per law, in view of the decision of MC Dowell & Co. Ltd. Vs. CTO 154 ITR 148 (SC). The Hon'ble Supreme Court has held that \"the taxing authority is entitled and is indeed bound to determine the true legal relation resulting from transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship.\" Moreover, the Hon'ble High Court of Delhi in recent decision in the case of CIT vs. M/s. Abhinandan Investment Ltd. dated 19.11.2015 (ITA 130/2001) has categorically explained the principle laid down by the Supreme Court in the case of MC Dowell & Co. and the same is fully applicable to the facts of penny stock cases. In present case assessee has dealt in penny stock, which is similar to shell companies for which various investigations were already carried out by Calcutta Investigation wing and SEBI order referred supra hence long term capital in present case is also an accommodative entry and AO is correct in treating such sale value as income from other sources.” Thus, the Ld. DR relied upon the Assessment Order and the Order of the CIT(A). 7. We have head both the parties and perused all the relevant material available on record. As per the contentions of the Ld. AR that the assessee has given all the details of purchase of shares of 50,000 appears to be not justifiable as the assessee has given only the details of Demat accounts shares which also not counterchecked with their actual purchase of the shares. The reply filed by the assessee during the Assessment Year as well as during the appellate proceedings does not include the details of purchase of shares and the source of purchase and shares of the fund was also not disclosed thereby not giving any details at both the Authorities on the part of ITA No.2239/Ahd/2018 Assessment Year: 2012-13 Page 7 of 8 the assessee. Thus, there was failure on the part of the assessee to give the details of purchase of shares. Besides this, at the time of selling of the shares, the assessee has not given the details of valuation of each share as on the date of sale except details mentioned in the contract note. In fact, the transaction Alpha Graphic equality as on 15.03.2024 though shown as 50,000, valuation of the said scrip as on 15.03.2004 as well as prior to 15.03.2004 was nowhere mentioned by the assessee as well as by the brokers in their statements of transaction-cum-holdings. Thus, the very inception of purchase of shares was doubted by the Assessing Officer. The contention of the Ld. AR that the Assessing Officer has solely relied upon SEBI Investigation report and the Investigation report of the Kolkata Wing as well as statement recorded during the investigations appears to be not justifiable as the Assessing Officer has given the independent finding related to doubting the purchase and shares by the assessee since the inception and also the process of Demat of the said shares in the year 2004. Thus, the Assessing Officer as well as the CIT(A) was justified in making the addition. 8. In the result, appeal of the assessee is dismissed. Order pronounced in the open Court on this 14th October, 2024. Sd/- Sd/- (NARENDRA PRASAD SINHA) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 14th October, 2024 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad "