SMT. PANKAJ AGRAWAL,VARANASI V. ITO, RANGE - 2(2), VARANASI

ITA 209/VNS/2019

AI Insights

The appeals by Smt. Pankaj Agrawal and Smt. Rekha Devi Agrawal challenged the orders of the CIT(A), Varanasi, concerning the assessment year 2014-15. The primary issues involved the assessment of sale proceeds from shares, unexplained bank deposits, and disallowance of interest claimed under section 24 against property income. The Assessing Officer had treated the long-term capital gains from share sales as bogus and assessed the sale proceeds as unexplained cash credits under section 68 of the Act, citing manipulation of share prices and a scheme to generate fictitious capital gains. The Tribunal found that the Assessing Officer had not substantiated these claims with specific evidence linking the assessees to any price manipulation or rigging schemes, leading to the decision to allow the appeals.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 23336 (ITAT-VARANASI)
• Duration Of Justice: 5 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-09-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 04-10-2019
• Other Referred Cases: Shyam Pawar vs. State, PCIT vs. Ziauddin A Siddique, CIT vs. Jamnadevi Agarwal, PCIT vs. Indravadan Jain (HUF)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITA MEENA
• Assessee Lawyers: ARVIND SHUKLA
• Keywords: Set aside; Question of law; Unexplained cash credit; Capital Gains; Principle of natural justice; Share purchase agreement; Scheme of amalgamation; Bogus
• Section: 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH, VARANASI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No. A.Y. Appellant Respondent 209/VNS/2019 2014-15 Smt. Pankaj Agrawal, 72, Jawahar Nagar Extn., Bhelupur, Varanasi [PAN: AGYPA9816G] The Income Tax Officer, Rage-2(2), Varanasi 210/VNS/2019 2014-15 Smt. Rekha Devi Agrawal, 72, Jawahar Nagar Extn., Bhelupur, Varanasi [PAN: ADGPA1745H] For Assessee : Shri Arvind Shukla, and Shri Asim Zafar, Advocates For Revenue : Smt. Kavita Meena, Sr.DR Date of Hearing : 10-09-2024 Date of Pronouncement : 22-10-2024 O R D E R PER B.R. BASKARAN, A.M : Both the appeals filed by the respective assessees are directed against the order passed by Ld CIT(A), Varanasi in their respective hands and they relate to the AY.2014-15. Since the underlying facts relating to the additions made in the hands of both the assessees are identical in 2 ITA Nos. 209 & 210/VNS/2019 nature, these appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. The assessees herein are related to each other. Identical additions were made by the AO in the hands of both the assessees in this year. The nature of additions are:- (a) Assessment of sale proceeds of shares rejecting the claim of long term capital gains. (b) Addition of deposits found in the bank account of assessees. (c) Disallowance of deduction of interest claimed u/s.24 of the Act against the property income. 3. We shall discuss the facts prevailing in the case of Smt. Pankaj Agrawal. Identical facts are prevailing in the case of Smt. Rekha Devi Agrawal also. Hence the decision taken in the case of Smt. Pankaj Agrawal can be conveniently applied in the other case. 4. The first issue is related to the assessment of sale proceeds of shares sold by the assessee. The assessee, Smt Pankaj Agrawal had purchased 12500 shares in M/s Paridhi Properties Ltd., at the face value of Rs.10/- each from the promoters. The assessee paid the purchase consideration of Rs.1,25,000/- by depositing cash in the bank account of above said company. She got share certificate on 21-03-2011. The above said company got merged with M/s Luminaire Technologies Ltd., as per the order dated 207-07-2012 passed by the Hon’ble High Court of Bombay. Accordingly, the assessee got 1,25,000 shares of Re1.00 each in M/s Luminaire Technologies Ltd, vide share certificate dated 04-09-2012. All the shares were dematerialized on 08-11-2012. 3 ITA Nos. 209 & 210/VNS/2019 5. During the year under consideration, the assessee sold 46000 shares for an aggregate price of Rs.24,60,700/- through the stock exchange on various dates from 07-06-2013 to 20-06-2013. The assessee declared long term capital gains of Rs.24,08,988/- and claimed the same as exempt u/s 10(38) of the Act. 6. The AO noticed that the Investigation Wing of Kolkata had unearthed racket of manipulating prices of certain companies (termed as ‘penny stock’ companies) and generation of bogus capital gains. The shares of M/s Luminaire Technologies Ltd were one of such penny stock companies. The AO further noticed that the financial fundamentals of the above said company did not justify the high shares prices. He noticed that the SEBI has also conducted enquiries on the price movements of certain companies and found out that certain persons have misused the stock exchange mechanism to provide exit to allottees at higher price in order to generate fictitious long term capital gains. Accordingly, the AO took the view that the share price movements are beyond the scope of human probabilities and hence suspicious in nature. Accordingly, by placing reliance on the investigation report, the AO took the view that the long term capital gains declared by the assessee is bogus in nature. Accordingly, the AO assessed the entire sale consideration of Rs.24,60,700/- as unexplained cash credit u/s.68 of the Act. 7. The Ld.CIT(A) also confirmed the same. 8. We heard the parties and perused the record. We notice that the AO has primarily placed reliance on the report given by the Investigation Wing of the Income Tax Department, Kolkata in order to arrive at the conclusion that the long term capital gains reported by the assessee is bogus in nature. We notice that the investigation report prepared by Investigation Wing, Kolkata is a generalized report with regard to the modus operandi 4 ITA Nos. 209 & 210/VNS/2019 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 with the people who were involved in the alleged rigging of prices. The Ld A.R also submitted that the regulator of stock market SEBI has not conducted any enquiry against the assessee or its broker. 9. We also notice that the assessee has (a) purchased these shares by paying consideration through banking channels. (b) shares of M/s Luminaire Technologies Ltd were allotted to the assessee in a scheme of amalgamation approved by Hon’ble High Court of Bombay. (b) dematerialized the shares and kept the same in the Demat account. (c) sold the shares through stock exchange platform (d) received the sale consideration through banking channels. Further, the shares have entered and exited the demat account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Further, 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. 5 ITA Nos. 209 & 210/VNS/2019 10. In support of our decision, we may refer to the decisions rendered by the Hon’ble Bombay High Court in the case of Shyam Pawar (54 taxmann.com 108)(Bom), the Hon’ble Bombay High Court has observed as under:- “3. Mr.Sureshkumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that there was some cash transaction through these suspected brokers, on whom there was an investigation conducted by the Department. Once the onus on the Department was discharged, according to Mr.Sureshkumr, by the Revenue-Department, then, such a finding by the Tribunal raises a substantial question of law. The Appeal, therefore, be admitted. 4. Mr.Gopal, learned Counsel appearing on behalf of the Assessee in each of these Appeals, invites our attention to the finding of the Tribunal. He submits that if this was nothing but an accommodation of cash or conversion of unaccounted money into accounted one, then, the evidence should have been complete. Change of circumstances ought to have, after the result of the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he submits that the Appeals do not raise any substantial question of law and deserve to be dismissed. 5. We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in 6 ITA Nos. 209 & 210/VNS/2019 shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock 7 ITA Nos. 209 & 210/VNS/2019 Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr.Suresh kumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs. 8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.” 11. In the case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022), the Hon’ble Bombay High Court has observed as under:- “2. We have considered the impugned order with the assistance of learned counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is 8 ITA Nos. 209 & 210/VNS/2019 no allegation against the assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 12. Further, in the case of CIT vs. Jamnadevi Agarwal (20 taxmann.com 529 (Bom), the Hon’ble Bombay High Court has held that the transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. In the case of PCIT vs. Indravadan Jain (HUF) (ITA No. 454 of 2018)(Bom), the broker through whom, the assessee had carried out the transactions have been alleged to have been indulged in price manipulations and the SEBI had also passed an order regarding irregularities and synchronized trades carried out in the shares by the said broker. However, the evidences furnished by the assessee with regard to purchase and sale of shares were not doubted. Under these set of facts, the Hon’ble Bombay High Court held as under:- “….The CIT(A) came to the conclusion that respondent bought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said 9 ITA Nos. 209 & 210/VNS/2019 broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slips and also received payment from Kolkatta Stock Exchage. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT(A) found there was no reason to add the capital gains as unexplained cash credit under section 68 of the Act. The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.” 13. Accordingly, in the facts and circumstances of the case, we are of the view that the decisions rendered by the jurisdictional Hon’ble Bombay High Court in the cases cited above shall apply to the present case, since the AO has not established that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee. 14. We noticed earlier that the AO has assessed the sale consideration of shares as unexplained cash credit u/s 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the Revenue. The sale of shares has taken place in the online platform of the Stock Exchange and the sale consideration has been received through the stock broker in banking channels. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of sec. 68 of the Act. 15. Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue and direct the AO to delete the addition made u/s.68 of the Act relating to sale consideration of shares. 10 ITA Nos. 209 & 210/VNS/2019 16. The next two additions contested by the assessee are (a) assessment of the deposits made into the bank account and (b) disallowance of claim of interest expenditure u/s 24 of the Act. We notice both the additions have been made by the tax authorities, since the assessee failed to furnish any evidence that were called for by the AO. The Ld. A.R prayed that both these issues may be restored to the file of the AO for examining it afresh and also assured that the assessee will co-operate with the AO by furnishing all the evidences. Accordingly, in the interest of natural justice, we set aside the order passed by the Ld.CIT(A) on both these issues and restore them to the file of the AO for examining them afresh. We also direct the assessee to fully co-operate with the AO for expeditious completion of assessment. 17. We shall now take up the appeal filed by Smt. Rekha Devi Agrawal. This assessee also purchased 12,500 shares of M/s Paridhi Properties Ltd and got 125000 shares of M/s Luminaire Technologies Ltd. She sold 51,000 shares for a consideration of Rs.27,32,950/- and declared long term capital gains of Rs.26,75,616/-, which was claimed to be exempt. The AO, on identical reasoning, assessed the sale consideration of Rs.27,32,950/- as unexplained cash credit u/s 68 of the Act. He also assessed bank deposits of Rs.21,20,700/- and also disallowed the interest of Rs.1,50,000/- claimed u/s 24 of the Act under the head Income from House property. 18. The decision rendered by us in the case of Smt. Pankaj Agrawal (supra) shall apply mutatis mutandis in this case also. Accordingly, we set aside the order passed by the Ld.CIT(A) on all the three issues and 11 ITA Nos. 209 & 210/VNS/2019 (a) direct the AO to delete the addition of Rs.27,32,950/- made u/s 68 of the Act and (b) restore two other issues to the file of the AO on identical directions. 19. In the result, both the appeals are treated as allowed. Order pronounced on 22-10-2024 by way of proper mentioning in the Notice Board. Sd/- Sd/- [AMIT SHUKLA] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Varanasi, Dated: 22-10-2024 TNMM Copy to : 1. The Appellant 2. The Respondent 3. The Pr. CIT, concerned 4. D.R. ITAT, Varanasi 5. Guard File. //By Order// //True Copy // Dy./Asst. Registrar, ITAT, Varanasi "