THE PRINCIPAL COMMISSIONER OF INCOME TAX 1, AHMEDABAD V. CHAMPALAL GOPIRAM AGARWAL

R/TAX APPEAL NO. 366 of 2023

AI Insights

The case revolves around the Principal Commissioner of Income Tax challenging the decision of the Income Tax Appellate Tribunal, which had dismissed the revenue's appeal against the assessee, Champalal Gopiram Agarwal. The core issue was the alleged trading of penny stocks by the assessee, which the revenue contended were sham transactions aimed at converting unaccounted money into legitimate income. The Assessing Officer (AO) had initially disallowed the loss claimed by the assessee from these transactions, but this was partly overturned by the CIT (Appeals) and subsequently by the Tribunal, leading to the present appeal by the revenue. The High Court, after reviewing the facts and the tribunal's decision, concluded that the questions raised did not constitute substantial questions of law but were rather factual issues, thus dismissing the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 361548 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 25-07-2023
• Appeal Filed By: Department
• Assessment Year: 2012-2013
• Other Referred Cases: Principal Commissioner of Income Tax, Vadodara - 3 v. Narmada Chematur Petrochemicals Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: VARUN PATEL
• Keywords: Accommodation entries; Bogus loss; Fictitious LTCG; Penny stock; Sham transaction
• Section: 148; 68; 260A; 142

Judgement Text

"C/TAXAP/366/2023 ORDER DATED: 25/07/2023 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 366 of 2023 ================================================================ THE PRINCIPAL COMMISSIONER OF INCOME TAX 1, AHMEDABAD Versus CHAMPALAL GOPIRAM AGARWAL ================================================================ Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ================================================================ CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV and HONOURABLE MR. JUSTICE DEVAN M. DESAI Date : 25/07/2023 ORAL ORDER (PER : HONOURABLE MR. JUSTICE DEVAN M. DESAI) 1. The appellant has filed present Tax Appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as `the Act’). The same is arising out of an order dated 23.12.2022 passed by the Income Tax Appellate Tribunal (hereinafter referred to as `the Tribunal’) in ITA No.592/Ahd/2020 for A.Y. 2012-13. 2. Heard learned counsel Mr. Varun K. Patel for the Page 1 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 appellant. Perused the record. 3. At the outset, the brief facts of the case are as under: * In the case of the assessee, information was received from the DDIT (Inv), Unit 6(2), Mumbai that the assessee had entered into trading of penny stock of M/s. Aarya Global Shares & Securities Ltd. (BSE Code: 531731 – earlier known as Kuvam International Fashions Ltd.) and also of Vax Housing Finance Corporation Ltd. It is the case of the revenue that the assessee traded for Rs.22,90,701/- in the trading of shares of M/s. Aarya Global Shares & Securities Ltd. and traded for Rs.56,63,864/- in the shares of Vax Housing Finance Corporation Ltd. Resultantly, the case of the assessee was reopened u/S.142 of the Act and pursuant thereto notice u/S.148 came to be issued. Page 2 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 * The AO vide order dated 17.12.2019 assessed the total income of the assessee @ Rs.11,44,610/- and further observed that the loss carry forward by the assessee was to be withdrawn. Being aggrieved and dissatisfied by the said order, the assessee preferred an appeal before the CIT (Appeals), Ahmedabad. The CIT (Appeals) vide its order dated 4.9.2020 partly allowed the appeal of the assessee. Against the said order, the revenue preferred appeal before the learned tribunal. The learned tribunal vide order dated 23.12.2022 dismissed the appeal of the revenue. Hence, this tax appeal. 4. The learned advocate for the appellant has proposed the following substantial questions of law for consideration: “(a) Whether in the facts and in the circumstances of the case and in law, the learned ITAT has erred Page 3 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 in deleting the disallowance of bogus loss of Rs.43,54,574/- incurred in penny stock without appreciating that the transaction was pre-arranged as well as sham and was carried out through penny scripts companies / paper companies ? (b) Whether in the facts and circumstance of the case and in law, the learned ITAT has erred in deleting the addition of Rs.19,310/- made on account of bogus transaction without appreciating that the transaction was pre- arranged as well as sham and was carried out through penny scripts company / paper company ? 5. The learned advocate for the appellant has taken us through the decision of the AO, the decision rendered by the CIT (Appeals) as well as the decision rendered by the learned Page 4 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 tribunal. 6. We have considered the submissions of the learned advocate for the appellant as well as gone through the decisions rendered by the learned tribunal. 7. It is observed by the learned tribunal that the controversy arose whether the assessee genuinely purchased and sold the shares of the above referred two companies through stock exchange. The learned tribunal has further observed that the AO has simply proceeded on the basis of financials of the company in arriving at the conclusion that the transactions were accommodation entries and hence they were fictitious. However, the conclusion drawn by the AO was on the assumption that there was an agreement to convert unaccounted money by taking fictitious LTCG. On appreciation of facts, Page 5 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 learned tribunal held that the decision of the AO was unsupported by any material on record and the finding was purely on assumption basis. 8. The learned tribunal has also observed that the respondent had successfully discharged the initial burden cast upon it under the provisions of Section 68 of the Act. It is not in dispute that the shares of the aforesaid two companies were purchased online and the payments were made through banking channel and the shares were dematerialized and the shares have been routed from demat account and the consideration was also received through bank channels. The AO does not have any independent source or evidence to show that there was an agreement between the assessee and any other party. The learned tribunal has also observed that in absence of any specific finding against the assessee, the assessee cannot be held to be Page 6 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 linked to the wrong acts merely on the basis of surmises and assumptions. 9. So far as the substantial question of law proposed by the learned advocate for the appellant is concerned, in view of the aforesaid findings and reasonings given by the learned tribunal, the same cannot be termed as a question of law, much less, substantial question of law. 10. We are fortified in our view by the decision dated 14.7.2021 in Tax Appeal No.165 of 2021 rendered by the Coordinate Bench of this Court in the case of Principal Commissioner of Income Tax, Vadodara - 3 v. Narmada Chematur Petrochemicals Limited. Relevant portion i.e. paragraph nos.7 and 8 of the said decision is reproduced hereunder: Page 7 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 “7. In view of the above, the issue having already been duly considered by the ITAT following the decision of the Full bench of this Court, the Court is of the opinion that the question proposed by the appellant in the present Appeal could not be said to be substantial question of law within the meaning of Section 260A of the said Act. It may be noted that the Appeal under Section 260A could be admitted only on the High Court being satisfied that the case involves a substantial question of law. The Supreme Court in the case of M. Janardhana Rao versus Joint Commissioner of Income Tax reported in (2005) 2 SCC 324, while dealing with the scope of Section 260A of the Income Tax Act, 1961, observed as under: - “14. Without insisting on the statement of substantial question of law in the memorandum of appeal and formulating the same at the time of admission, the High Court is not empowered to generally decide the appeal under Section 260A without adhering to the procedure prescribed under Section 260A. Further, the High Court must make every effort to distinguish between a question of law and a substantial question of law. In exercise of powers under Section 260A, the findings of fact of the Tribunal cannot be disturbed. It has to be kept in mind that the right of appeal is neither a natural nor an inherent right attached to the litigation. Being a substantive statutory right, it has to be regulated in accordance with law in force at the relevant time. The conditions mentioned in Section 260A must be strictly fulfilled Page 8 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 before an appeal can be maintained under Section 260A. Such appeal cannot be decided on merely equitable grounds. 15. An appeal under Section 260A can be only in respect of a 'substantial question of law'. The expression 'substantial question of law' has not been defined anywhere in the statute. But it has acquired a definite connotation through various judicial pronouncements. In Sir Chunilal V. Mehta & Sons Ltd. v. Century Spinning & Mfg. Co. Ltd., AIR (1962) SC 1314, this court laid down the following tests to determine whether a substantial question of law is involved. The tests are: (1) whether directly or indirectly it affects substantial rights of the parties, or (2) the question is of general public importance, or (3) whether it is an open question in the sense that issue is not settled by pronouncement of this Court or Privy Council or by the Federal Court, or (4) the issue is not free from difficulty, and (5) it calls for a discussion for alternative view. There is no scope for interference by the High Court with a finding recorded when such finding could be treated to be a finding of fact.” 8. Again the Supreme Court in case of Vijay Kumar Talwar versus Commissioner of Income Tax in (2011) 330 ITR 1 considered the issue of substantial question in context of Section 260A of the IT Act and observed as under: “18. It is manifest from a bare reading of the Section that an appeal to the High Court from a decision of the Tribunal lies Page 9 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression \"substantial question of law\" is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements. In Sir Chunilal V. Mehta & Sons, Ltd. Vs. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314 a Constitution Bench of this Court, while explaining the import of the said expression, observed that: \"The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.\" Page 10 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 19. Similarly, in Santosh Hazari Vs. Purushottam Tiwari (2001)3 SCC 179 a three judge Bench of this Court observed that: \"A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be \"substantial\" a question of law must be debatable, not previously settled by law of the land or a binding precedent,AIR 1962 SC 1314 (2001) 3 SCC 179 and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law \"involving in the case\" there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in Page 11 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 the life of any lis.\" 20. In Hero Vinoth (Minor) Vs. Seshammal (2006) 5 SCC 545, 556, this Court has observed that: \"The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to \"decision based on no evidence\", it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding. 21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been (2006) 5 SCC 545 taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See: Madan Lal Vs. Mst. Gopi & Anr. (1980) 4 SCC 855; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi (2009) 3 SCC 287; Commissioner of Customs Page 12 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION C/TAXAP/366/2023 ORDER DATED: 25/07/2023 (Preventive) Vs. Vijay Dasharath Patel (2007) 4 SCC 118; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta (2004) 12 SCC 505; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. (2002) 8 SCC 715)” 11. Thus, the proposed substantial questions of law are not involving any substantial questions of law but they are more in relation to the factual aspect. In the totality of the facts, the present appeal lacks the test determined whether the substantial question of law is involved. There is no reason to interfere with the findings of the learned tribunal. Findings recorded by the learned tribunal are purely on factual aspects. Hence, this Tax Appeal is devoid of merits and deserves to be dismissed and the same is accordingly dismissed with no order as to costs. (BIREN VAISHNAV, J) (D. M. DESAI,J) VATSAL Page 13 of 13 Downloaded on : Tue Jun 03 17:16:33 IST 2025 Uploaded by VATSAL S. KOTECHA(HC00352) on Thu Jul 27 2023 2023:GUJHC:38713-DB NEUTRAL CITATION "