SUJIT MADAN ,. V. DCIT CC -01, NEW DELHI , .

ITA 3436/DEL/2023

AI Insights

The case involves Sujit Madan, who appealed against the reassessment order for the assessment year 2016-17, which added Rs 76,21,459 to his income, claiming it as unexplained cash credit from the sale of shares. The reassessment was based on information from a search and seizure operation related to another entity, which implicated the shares sold by Madan in providing accommodation entries of bogus LTCG. The Tribunal examined the validity of the reassessment under section 147 and the addition made under section 10(38) of the Act. The Tribunal found that the reassessment was unjustified as there was no direct evidence linking Madan to any wrongdoing, and the shares were sold through a recognized stock exchange after suffering STT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34860 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2016-2017
• Other Referred Cases: Aakruti Ketan Mehta vs ITO, PCIT Vs. Swati Bajaj, PCIT Vs. Smt Krishna Devi, PCIT Vs. Smt Renu Agarwal, CCIT (OSD) Vs. Nilesh Jain (HUF), Union of India Vs. Kamalakshi Finance Corporation Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYA CHAUDHARY
• Assessee Lawyers: RAJIV SAXENA; ACCOUNT PAYEE CHEQUE FROM
• Keywords: Reassessment proceedings; Unexplained cash credit; Unexplained expenditure; Cost of acquisition; Capital Gains; Search and seizure; Accommodation entries; Share purchase agreement; Bogus
• Section: 147; 148; 143(3); 143(1); 153; 132; 139(1); 43; 69C

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 3436/Del/2023 (Assessment Year: 2016-17) Sujit Madan, H-35, 1st Floor, Jangpura Extension, New Delhi Vs. DCIT, Central Circle-01, New Delhi (Appellant) (Respondent) PAN: AAFPM6758C Assessee by : Shri Rajiv Saxena, Adv Ms. Sumangla Saxena,Adv Shri Shyam Sunder, Adv Revenue by: Ms. Jaya Chaudhary, CIT DR Date of Hearing 21/10/2024 Date of pronouncement 20/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.3436/Del/2023 for AY 2016-17, arises out of the order of the Commissioner of Income Tax (Appeals)-23, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. CIT(A),Delhi- 23/10881/2015-16 dated 31.10.2023 against the order of assessment passed u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 04.03.2022 by the Assessing Officer, DCIT, Central Circle-1, Delhi (hereinafter referred to as ‘ld. AO’). 2. The Ground No. 1 raised by the assessee challenging the validity of the assessment order for non-mentioning of the Document Identification Number (DIN) was stated to be not pressed by the learned AR at the time ITA No. 3436/Del/2023 Sujit Madan Page | 2 of hearing. The same is reckoned as a statement made from the bar and accordingly Ground No. 1 is dismissed as not pressed. 3. The Ground No. 4 raised by the assessee is challenging the initiation of penalty proceedings by the learned AO which would be premature for adjudication at this stage and hence dismissed. 4. The Ground Nos. 2, 3 and 5 raised by the assessee are challenging the validity of reassessment under section 147 of the Act and challenging the addition of Rs 76,21,459 made by the learned AO and confirmed by the learned CITA in the fActs and circumstances of the instant case. 5. We have heard the rival submissions and perused the materials available on record. The assessee is an individual and had filed his original return of income under section 139(1) of the Act for the assessment year 2016-17 on 21-07-2016 declaring total income of Rs 47,08,260/-. The same was processed under section 143(1) of the Act. Further as per the information received through CRIU module of insight portal, following inputs pertaining to the assessee were made available:- a) A search and seizure action was conducted under section 132 of the Act by the investigation wing, New Delhi on 16-05-2018 in the case of M/s Dutta and Tyagi group wherein it was established that shares of M/s Yamini Investment Company Limited (purchased and sold by the assessee) was used to provide accommodation entries of bogus Long Term Capital Gains (LTCG). b) Furthermore, as per the information received from CRIU module, the name of assessee along with figures in attached beneficiaries list with trade value of Rs 73,99,475/- from the shares of M/s Yamini Investment Company Limited was mentioned. ITA No. 3436/Del/2023 Sujit Madan Page | 3 c) As per the information received in the case of assessee, he was observed to be the beneficiary of accommodation entries of bogus LTCG from sale of shares of M/s Yamini Investment Company Limited. Therefore, income to the extent of Rs 73,99,475 for assessment year 2016- 17 had escaped assessment owing to failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment within the meaning of section 147 of the Act. Accordingly, the assessment of the assessee was sought to be reopened vide issuance of notice under section 148 of the Act which was issued on 27-03-2021 after obtaining the prior approval in terms of section 151 of the Act from the learned JCIT, Central Range- 1, New Delhi. In response to the notice under section 148 of the Act, the assessee furnished the return of income on 1-4-21 and asked for copy of reasons recorded for reopening the assessment. The reasons recorded by the learned AO for reopening the assessment was furnished to the assessee on 22-02-2022. The learned AO had observed that assessee has not submitted any objection against the reasons recorded which were supplied to him. However, a reply was filed by the assessee raising objections against reopening vide his letter dated 2-7-2021. The Learned CITA admitted the fact that the Learned AO did not dispose of the objections by way of a separate speaking order , but held that the same would not be fatal to the reassessment proceedings. He directed the Learned AO vide letter dated 11-11-2022 to pass a separate speaking order disposing of the objections. In reply, the Learned AO submitted vide letter dated 3-2-2023 that objections for reasons recorded were duly disposed of by a separate speaking order on 31-1-2023. ITA No. 3436/Del/2023 Sujit Madan Page | 4 6. The learned AO proceeded to treat the LTCG declared by the assessee and claimed as exempt under section 10(38) of the Act in respect of sale of shares of M/s Yamini Investment Company Limited to be bogus and added a sum of Rs 73,99,475/- thereon by denying the exemption under section 10(38) of the Act. Since the LTCG of Rs 73,99,475/- was treated as unexplained cash credit arising through accommodation entries, estimated commission expenditure at the rate of 3% of the value there on was also added as unexplained expenditure under section 69C of the Act in the sum of Rs 2,21,984/-. This action of the Learned AO was upheld by the Learned CITA. 7. The assessee made investment in buying shares of M/s Anax Com Trade Ltd. Payment was made vide cheque number 564481 dated 25-09- 2012 of Rs 2 lakhs and share certificates allotting shares of Rs 2 lakhs was issued on 25-03-2013. The assessee had enclosed the bank statement from which the payment of Rs 2 lakhs was made by him for purchase of 2 lakh shares of Anax Com Trade Ltd. These shares stood dematerialized on 15- 04-2014. 8. M/s Anax Com Trade Ltd. of Mumbai and M/s Fidelo Power and Infrastructure Ltd of Delhi as transferor companies and Yamini Investment Company Ltd of Mumbai as transferee company filed scheme of arrangement under section 394 of the Companies Act, 1956 vide Company Petition No. 563/2013 and Hon’ble Bombay High Court approved the scheme of arrangement by an order dated 9-05-2014 with regard to transferor company number 1 and the transferee company as both were registered at Mumbai. Subsequently Hon’ble Delhi High Court finally sanctioned the scheme of arrangement of Anax Com Trade Ltd referred to as non-petitioner / transferor company and Fidelo Power and Infrastructure Ltd. referred to as petitioner / transferor company number 2 with M/s ITA No. 3436/Del/2023 Sujit Madan Page | 5 Yamini Investment Company Ltd. referred to as non-petitioner / transferee company with effect from 1-4-2013. The assessee was allotted 1,60,000 shares of Yamini Investment Company Ltd. as against 2 lakh shares of M/s Anax Com Trade Ltd. already held by him. The market value of the shares of Yamini Investment Company Ltd. in October 2014 was ranging from Rs 452 to 496 per share. However, finding that the value of those shares were going down, the assessee decided to sell those shares as detailed under:- a) Sold on 08-06-2015 - 60,000 shares at Rs 61.70 per share b) Sold on 09-06-2015 - 22,500 shares at Rs 58.15 per share c) Sold on 25-02-2016 - 77,500 shares at Rs 30.85 per share Total 1,60,000 shares sold for Rs 74,01,250/- . 9. The Learned AR before us submitted that the addition was made by the Learned AO on general grounds on the basis of information received without making any enquiry or bringing any material to the contrary and without application of his own mind. The Learned AO had disallowed the claim of LTCG of Rs. 73,99,475/- and after adding 3% as commission of Rs. 2,21,984/- as unexplained expenditure under section 69C of the Act against which assessee preferred an appeal before the Learned CITA. The Learned CITA obtained remand report from the Learned AO and dismissed the legal ground raised before him challenging the validity of reopening under section 147 of the Act and also specific grounds raised thereon on merits. It is not in dispute that assessee had made purchase of 2 lakh shares at the rate of Re. 1 each of Anax Trade com Limited on 25-09-2012 for which payment of Rs 2 lakhs was made by the assessee by account payee cheque from sources duly disclosed to the income tax department. The assessee was duly issued share certificates in this regard which is enclosed in page 58 of the Paper Book. These physical share certificates were duly dematerialized and converted in demat form on 15-04-2014. The evidence in this regard is ITA No. 3436/Del/2023 Sujit Madan Page | 6 enclosed in page 60 of the Paper Book. Later, M/s Anax Trade Com Limited merged with Mrs. Yamini Investments Company Limited vide order of Hon’ble High Court with effect from 01-04-2013. Pursuant to the said amalgamation, assessee was issued 1,60,000 shares of Yamini Investment Company Limited as against 2 lakh shares held by him in Anax Com Trade Limited. These 1,60,000 shares were sold in three tranches by the assessee seeing that the share price was going down drastically from Rs 450 to Rs 30. Hence, in three different phases, the assessee had sold the shares in the open market through a registered stockbroker after duly suffering Securities Transaction Tax (STT). The total sale consideration received by the assessee on sale of shares of Yamini Investment Company Limited was Rs 75,99,961/- and after reducing the purchase cost of Rs 2 lakhs, he earned Long Term Capital Gains of Rs 73,99,975/- and claimed the same as exempt under section 10(38) of the Act as the sale transaction had duly suffered STT and had been made through a registered stockbroker in the recognized stock exchange. The assessee had furnished the following documents in support of the purchase and sale transactions of shares. a) Share certificates dated 25-03-2013 issued by Anax Com Trade Limited. b) Relevant page of the bank statement reflecting payment made for purchase of shares on 25-09-2012. c) Copy of DEMAT statement evidencing the fact of dematerialization of shares and evidence for shares getting debited in the DEMAT statement as and when they are sold. d) Copy of statement of accounts ledger from 1-04-2015 to 31-03- 2016 of the sharebroker ‘Choice Equity Broking Limited’. e) Copy of contract notes issued by Choice Equity Broking Limited. ITA No. 3436/Del/2023 Sujit Madan Page | 7 f) Copy of bank statement relevant for assessment year 2016-17 reflecting the sale proceeds credited on sale of shares. g) Details of share prices for Yamini Investment Company Limited for April 2014 and 2015, evidencing the fact of dip in share prices which made the assessee to take a decision to sell the shares. 10. We find that the lower authorities brushed aside the submissions and all the documents filed during the course of the respective proceedings and merely relied upon the information received through CRIU module of insight portal and failed to conduct an independent inquiry against the claim of the assessee. Absolutely, there is no direct or indirect evidence against the assessee which has been brought on record by the lower authorities to justify the addition by denying the claim of exemption under section 10(38) of the Act for the assessee. The lower authorities had merely relied on third party information in this regard. It is pertinent to note that the transaction of purchase of shares made by the assessee in this regard has been accepted and no doubts or adverse inference has been drawn on the same. These investments in shares were made in September 2012. The payments for the same had been made by account payee cheque out of the disclosed bank account by the assessee. These shares were duly dematerialized and were held by the assessee for more than three years. Seeing the fact that the shares were going down drastically as stated supra, the assessee decided to sell the shares in three different tranches during the year under consideration. These shares were admittedly sold through a recognized, through a registered share broker in the recognized stock exchange in the open market after duly suffering STT. Hence, there is absolutely no reason for the lower authorities to doubt the transaction carried out by the assessee. ITA No. 3436/Del/2023 Sujit Madan Page | 8 11. The Learned CITA relied on the order passed by Securities and Exchange Board of India (SEBI) dated 4-9-2023 in the case of Yamini Investment Company Limited restraining certain parties from accessing the securities market. The said order clearly specified the list of persons involved in the manipulation of the scrip and artificial rigging of share prices and who were the actual beneficiaries by obtaining ill –gotten gains through the scrip of Yamini Investment Company Limited . On perusal of the said order, neither the assessee’s name nor the share broker through which assessee traded are reflected and hence no adverse inference could be drawn on the assessee herein. We also find that SEBI order had also taken cognizance of the fact that stock split benefit of 1:10 was obtained by some of the persons in this scrip, whereas the assessee had bought the shares earlier to the date of stock split itself. Further the period of SEBI enquiry was from Sept 2013 to Jan 2014 , whereas the assessee sold shares in June 2015 and Feb 2016. Nowhere the assessee’s conduct fall under any of the adverse effects reflected in the order of SEBI. Hence the reliance placed on the order of SEBI does not come to the rescue of the revenue in the peculiar facts and circumstances of the instant case. 12. The ld DR vehemently placed reliance before us on the decision of the coordinate bench of Mumbai Tribunal in the case of Aakruti Ketan Mehta vs ITO in ITA No. 53/Mum/2023 for AY 2014-15 dated 31.01.2024 wherein, the Tribunal had made a passing observation in para 30 that the SEBI had adjudicated and found that the entire trading of the shares in the stock market qua scrip of Sunrise Asian Ltd was only a plot to provide accommodation entry to certain parties who had approached them to provide accommodation entry. The Tribunal also had held that even though there cannot be any direct evidence against the assessee but all these entries had cast a shadow of test of genuineness of the transaction which ITA No. 3436/Del/2023 Sujit Madan Page | 9 requires juridical frown and condemnation. Further, the Tribunal had also placed reliance on the decision of the Hon’ble Calcutta High Court in the case of PCIT Vs. Swati Bajaj reported in 139 taxmann.com 352 (Cal HC). Further, in para 31 of the said order, the Tribunal also records the fact that they are not inclined to go into the details of various judgments wherein, addition have been deleted on the scrip of M/s. Sunrise Asian Ltd and statement of Shri Vipul Vidur Bhatt has been discarded on the ground that assessee has not given cross examination. Further, in the said paragraph, the Tribunal had extensively relied on the SEBI’s Investigation carried out with regard to said scrip. 13. We have already dealt extensively regarding the SEBI order as passed in respect of Yamini Investment Company Ltd shares by clearly bringing on record that the said order does not either directly or indirectly implicate the assessee in any manner whatsoever and all the allegations levelled in the said SEBI order does not apply factually to the assessee- be it with regard of stock split or the period of enquiry carried out by SEBI etc. The SEBI order is for the enquiry conducted from September 2013 to Jan 2014 with regard to behavior of the said scrip in the stock market whereas the assessee had sold the share in June 2015 and February 2016. Even if the scrip is to be construed as tainted scrip, the assessee cannot be implicated or linked with the alleged tainted persons merely because certain tainted persons were involved in the artificial rigging in the share price. Further, even in the Mumbai Tribunal relied upon by the ld DR vehemently, there is an observation that people who had approached the tainted parties in order to get accommodation entries in the form the exempt long term capital gains. There is absolutely no evidence brought on record by the revenue in the instant case before us that assessee had either approached the alleged tainted parties/ entry operators who were involved in artificial rigging of ITA No. 3436/Del/2023 Sujit Madan Page | 10 share price of Yamini Investment Company ltd in order to receive accommodation entries in the form of exempt long term capital gains. It is pertinent to note that assessee has been holding the share from September 2012 onwards and the price of the very same scrip in the open market in October 2014 was ranging from Rs. 452 to 496 per share. Considering the drastic fall in the said scrip, the assessee had chosen to sell it in three tranches at the price 61.70 per share; Rs 58.15 per share and Rs. 30.85 per share. This is classic case of assessee falling in the category of gullible investor who had been hit by the declining market prices due to alleged manipulation and artificial rigging of share prices carried out by some 3rd party who are totally unconnected with the assessee. Hence, in our considered opinion, reliance placed on the decision of the Mumbai Tribunal would not come to the rescue of the revenue. Further, we find our view is further fortified by the decision of the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Smt Krishna Devi reported in 431 ITR 361 (Del); decision of the Hon’ble Allahabad High Court in the case of PCIT Vs. Smt Renu Agarwal 153 taxmman.com 578 and decision of the Hon’ble Madhya Pradesh High Court in the case of CCIT (OSD) Vs. Nilesh Jain (HUF) 163 taxmann.com 229, among others. Now we are left with a situation wherein, the Hon’ble Jurisdictional High Court has decided in favour of the assessee and some non-Jurisdictional High Court had given divergent views. When there is a decision of Hon’ble Jurisdictional High Court, the same would prevail over other High Courts , Tribunal and this Tribunal need not take cognizance of the Hon’ble Non- Jurisdictional High Court or for that matter any other Tribunal decision. The law is very well settled by the decision of Hon'ble Supreme Court in the case of Union of India Vs. Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of the Hon’ble Jurisdictional High Court would have higher precedence value than the decision of the Hon’ble Non Jurisdictional High Court or the Tribunal. ITA No. 3436/Del/2023 Sujit Madan Page | 11 Hence, we deem it follow the decision of the Hon’ble Jurisdictional High Court in the instant case before us. 14. Further, we find that in assessee’s brother's case, Shri Rajiv Madan, in respect of identical facts of sale of shares of Yamini Investment Company Limited, the income tax department had accepted the claim of short term capital gains disclosed by him to be genuine in the reopened assessment proceedings under section 143(3) read with section 147 of the Act dated 26-5-23. The learned AR placed on record the copy of the said assessment order in pages 53-56 of the synopsis. This evidence also goes against the department wherein for the same set of shares, in case of assessee’s brother, the entire transactions have been accepted as genuine by the department whereas, exactly contrary view has been taken in the case of the assessee herein. 15. In view of the aforesaid observations, we hold that there is absolutely no case made out by the revenue for justifying the denial of exemption under section 10(38) of the Act in the facts and circumstances of the instant case . Accordingly, the Ground Nos. 2, 3 and 5 raised by the assessee are hereby allowed. 16. The Ground No. 7 raised by the assessee is general in nature and does not require any specific adjudication. 17. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 20/01/2025. -Sd/- -Sd/- (SAKTIJIT DEY) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated:20/01/2025 A K Keot ITA No. 3436/Del/2023 Sujit Madan Page | 12 Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "