UMESH P. MAHANSARIA (HUF),SURAT V. DY. COMMR. OF INCOME TAX, CIRCLE- 1(3), SURAT, SURAT

ITA 151/SRT/2024

AI Insights

The case revolves around the appeal by Umesh P. Mahansaria (HUF) against the order of the National Faceless Appeal Centre, Delhi/Commissioner of Income Tax (Appeals), which sustained the additions made by the Assessing Officer under section 68 and section 69C of the Income Tax Act, 1961. The additions were based on the presumption that the long-term capital gains claimed by the assessee from the sale of shares were non-genuine and arranged. The Tribunal examined the merits of the case, considering the documentary evidence provided by the assessee and the lack of adverse findings by the lower authorities. The Tribunal also addressed the procedural validity of the assessment order, noting issues related to jurisdiction and the issuance of notice under section 143(2).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29797 (ITAT-SURAT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Other Referred Cases: National Thermal Power Co. Ltd. vs. CIT, Rajsheela Growth Fund (P) Ltd Vs ITO, Pankajbhai Jaysukh Lal Shah Vs ACIT, Sudhir Kumar Aggarwal Vs ITO, Anderson Printing House (P) Ltd Vs ACIT, Himani M. Vakil, Parasben Kasturchand Kochar, PCIT Vs. Indravadan Jain, HUF
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: RAMESH MALPANI
• Keywords: Unexplained cash credit; Unexplained expenditure; Rule of consistency; Tax effect; Capital Gains; Competent authority; Bogus
• Section: 143(3); 143(2); 68; 131; 69C

Judgement Text

" आयकर अपीलीय अिधकरण, सूरत Ɋायपीठ, सूरत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 151/SRT/2024 (AY 2015-16) (Hybrid hearing) Umesh P. Mahansaria (HUF) C-501, The Legend, Vastu Gram, Vesu, Surat-395 007 [PAN : AAAHU 6298 L] बनाम Vs Deputy Commissioner of Income- tax, Circle-1(3), Surat, Aaykar Bhavan, Anavil Building, Adajan, Surat-395 009 अपीलाथŎ/Appellant ŮȑथŎ /Respondent िनधाŊįरती की ओर से /Assessee by Shri Ramesh Malpani, CA राजˢ की ओर से /Revenue by Shri Mukesh Jain– Sr-DR सुनवाई की तारीख/Date of hearing 20.01.2025 उद ्घोषणा की तारीख/Date of pronouncement 20.01.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi/Commissioner of Income tax (Appeals) [for short to as “NFAC/Ld.CIT(A)] dated 28.12.2023 for assessment year (AY) 2015-16, which in turn arises out of assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) 21.11.2017. The assessee has raised the following grounds of appeal:- Sr. No Grounds of appeal Tax effect relating to each ground of appeal 1. That on the facts and in the circumstances of the case as well as in law, the appeal order passed by ld.CIT(A) dismissing the appeal of the appellant is wrong, unjustified, invalid and bad in law. Plea of appellant 1) That on the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 2 sustaining the addition of Rs.43,69,967/- u/s 68 of the I.T. Act, 1961 (the Act), by wrongly presuming the genuine long term capital gain (LTCG) earned from sale of listed shares on the platform of stock exchange and claimed exempted u/s 10(38) of the Act, as non-genuine and arranged LTCG. The addition so made by ld. AO and sustained by ld. CIT(a) is without any lawful basis or finding in respect of transactions of appellant and is grossly wrong, unjustified and contrary to the law. Appellant prays for deleting the same. Rs.13,50,320/- 2) That on the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in sustaining the addition of Rs.2,18,498/- on account of unexplained expenditure u/s 69C of the Act, which is presumed to have been incurred @ 5% of above LTCG, whereas there has not been an iota of finding or lawful basis for assuming the genuine LTCG earned by appellant as ‘arranged’ nor there has been any finding of incurring of any such unexplained expenditure by the appellant. Addition so made and sustained is grossly wrong and unjustified. Appellant prays for deleting the same. Rs.67,516/- 3) Appellant craves leave to add, alter, delete or modify any ground of appeal./ Plea of appellant 2. The assessee vide application dated 27.05.2024 has raised additional grounds of appeal: Ground No. Ground of appeal Tax effect 5) 1) That on the facts and in the circumstances of the case as well as law, the assessment order passed u/s 143(3) of the Act is invalid and bad in law, because either the same has been passed by the AO not having jurisdiction over the case of appellant or the same has been passed without issuing notice u/s 143(2) of the I.T. Act, 1961 (the Act) by the AO having jurisdiction over the case of appellant, as the assessment order has been passed by the DCIT, Circle-1(3), Surat; whereas the notice u/s 143(2) was issued by the ITO, Ward-1(3)(3), Surat and no order u/s 127 has been passed for transfer of case of appellant. Therefore, either issuance of notice u/s 143(2) or passing of assessment order u/s 143(3) is without jurisdiction and, consequently, the assessment order passed u/s 143(3) is invalid and bad in law. Appellant prays for quashing the assessment order so passed. Legal plea of appellant ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 3 Above additional ground is legal plea on facts already on records of ld. AO. Hence, we pray your honours to kindly admit and adjudicate the same. We may submit that it has been laid down by Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 382 (SC) that such additional ground involving legal issue on the facts already on records must be admitted and adjudicated. We, therefore, humbly pray your honours to kindly admit and adjudicate above additional ground of appeal. With kind regards, 3. Brief facts of the case are that assessee is an HUF filed its return of income for assessment year 2015-16 on 25.03.2016 declaring income of Rs.3,61,990/-. The case was selected for scrutiny to examine the share transaction of penny scrip. Notice under section 143(2) 20.09.2016 was issued by Income Tax Officer(ITO) Ward-1(3)(3) Surat, which was duly served on the assessee. During assessment, Assessing Officer noticed that in computation of income, assessee has shown Long-term capital gains (in short, ‘LTCG’) on sales of scrip of Mishka Finance Ltd. of Rs. 43,69,,967/-. On perusal of details, Assessing Officer noted that assessee has shown purchase of shares of Mishka Finance & Trading Ltd. on 03.12.2012. The assessee purchases 1,000 shares @ Rs.35/- per share through Roongta Raising Stock Pvt. Ltd. The Assessing Officer further recorded that assessee has sold such shares through Edelweiss Financial Advisors Ltd., Surat at a huge margin within span of 18 months. The Assessing Officer recorded modus operandi of penny scrip by referring report of Investigation Wing Kolkata and the statement of entry provider recorded by DDIT (Inv.), Unit 2(3) wherein they accepted that M/s Mishka Finance & Trading Ltd. has treated in prepared bogus LTCG/STCG and provided bogus capital gains. On the basis of such modus operandi, asked the Authorized Representative (AR) of assessee to produce Karta of the assessee to explain the transactions and issued summons under section 131 of the Act ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 4 for personal appearance. Karta of Umesh P Mahansaria appeared on 02.11.2017 and statement was record. The Assessing Officer recorded on asking that on whose guidance they purchased the shares of Mishka Finance Ltd. was purchase. The Karta of the assessee stated that he does not remember the name. He further stated he had no knowledge of working of company, the shares were purchased in off market and were purchased through Roongta Raising Stock Pvt. Ltd. After recording statement of assessee, the Assessing Officer issued details of show cause notice. Contents of show cause notice is recorded at pages No. 27 to 32 in assessment order. In the show cause notice, Assessing Officer asked as to why sale of shares should not be treated as shame and added under section 68 of the Act. The assessee filed its reply. The contents of reply are recorded in pages 30 to 42 in assessment order. In the reply, assessee explained that they purchased 1,000 shares @ Rs.35/- per share of Pyramid Trading & Finance Ltd. on 03.12.12 and face value share was at 10.00 per share. The shares were sent to RTA for transfer and was recorded by RTA on 31.01.2013. Later on the said company declared bonus in the ratio of 1:7 on 14.02.2013. Consequently, bonus share 7,000 were allotted. Thus, the total holding of assessee became 8,000, shares were splitted into face value of Rs.1.00/- vide board resolution dated 16.01.2014. Thus, shareholding of assessee became 80,000. The shares were listed in Bombay Stock Exchange and sold at Rs.43,69,967/- and sale of these shares sold through Roongta Raising Stock Pvt. Ltd.. The assessee kept share in Demat account for 14 months and payment for purchase were made through cheque. All necessary documents consisting contract notes in respect ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 5 of purchase of share, letter from RTA transfer of shares in the name of assessee, issue of bonus shares, deposit of share into demat account intimation from RTA for splitting of shares all contract notes of sale of shares were furnished. The stated that assumption made by Assessing Officer about jacking of prices and booking of capital gains are hypothetical and without any substance. The assessee has no nexus directly or indirectly in managing or jacking up prices had been proved at any stage. Merely investigation by SEBI against any company cannot be termed as it is a bogus company. The assessee also relied on certain case law to substantiate the fact that all transactions were made in a good faith with a motive to earn gain. The assessee has fulfilled all conditions of Section 10(38) of the Act for earning LTCG. The reply of assessee was not accepted. The Assessing Office by referring the decisions of various Tribunals that humongous against made by assessee is devoid of any fundamentals which jumped by almost 12485 per cent within one and half years’ time by defies any logic or human probabilities and cannot be genuine transaction. The Assessing Officer treated the transactions as bogus. The Assessing Office also added 2% as unexplained expenditure for claiming LTCG thereby added Rs.2,18,498/-, being 5% of Rs.43,69,967/- while passing the assessment order on 21.11.2017 under section 143(3) of the Act. 4. Aggrieved by the addition made in the assessment order, assessee filed appeal before Ld.CIT(A). The Ld.CIT(A) confirmed the action of Assessing Officer by taking view that assesse failed to produce any submission during appellate stage and there is no need to interference with the addition made in the ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 6 assessment order. Further, aggrieved, assessee has filed present appeal before the Tribunal. 5. We have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue. The Ld. AR of the assessee submits that he has raised additional ground that assessment order is invalid and bad in law. The assessment order is passed by Assessing Officer was no jurisdiction over the assessee and or the same has been passed without issuing notice under section143(2) of the Act by Assessing Officer having jurisdiction over the assessee. Notice under section 143(2) was issued by ITO Ward-1(3)(3), Surat and the assessment order is passed by DCIT, Circle-1(3), Surat and there is no order under section 127 of the Act for transfer of the case. Consequently, the assessment order passed under section 143(3) is invalid and bad in law and thus action of Assessing Officer is void ab initio. The Ld. AR of the assessee submits that no additional facts are required to be brought on record for adjudication of additional ground. Facts relating to allegation of additional grounds are emanating from the order of lower authorities. To support his submission, Ld. AR of the assessee relied upon decisions of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC). 6. On merits of additional grounds of appeal, the ld AR of the assessee submits that while filing return of income the assessee has shown income of Rs. 3.61 Lacs only, thus, as per Circular of Central Board of Direct Tax (CBDT) No. 1/2011, dated 31.01.2011, the assessing officer in case of assessee is ITO as income declared by assessee was below Rs. 15.00 lacs. And no order under ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 7 section 127 is passed by competent authority for transferring his case from ITO to Deputy Commissioner of Income Tax (DCIT). No fresh notice under section 143(2) was issued by DCIT, therefore assessment order is passed without jurisdiction and the same is bad in law. The ld AR of the assessee by referring various case laws, but mainly relied on the following case laws;  Rajsheela Growth Fund (P) Ltd Vs ITO (2024) 165 taxm,ann.com 182 (Delhi),  Pankajbhai Jaysukh Lal Shah Vs ACIT (2019) 110 taxmann.com 51(Gujarat –HC)  Sudhir Kumar Aggarwal Vs ITO (ITA No. 158/RPR/2017)  Anderson Printing House (P) Ltd Vs ACIT (2021) 134 taxmann.com 4 (Kol-trib). 7. In support of original ground, on merit of the case the ld AR of the assessee submits that ground No. 2 of the appeal is covered in favour of assessee by the decision of this bench in case of family member of assessees HUF, wherein on same set of facts, similar additions were deleted in Neelu Mahansaria in. ITA No. 893/Srt/2023 (AY2015-16) and in ITA No. 197/Srt/2023 dated 17/08/2023. Thus, the assessee is liable to be succeeded on legal issue as well as on merit. The ld AR for assessee submits that he has also placed on record all the documentary evidences to substantiate all transactions of share on which the assessee earned LTCG during relevant financial year. 8. On the other hand, Ld. Sr-DR for the Revenue supported the order of lower authorities. Ld. Sr-DR for the Revenue submits that against the admission of additional grounds that no such ground of appeal was raised before First Appellate Authority, the assessee has not filed any objections or written submission either raising such issue or on merit. Such additional ground is raised for the first time before Tribunal. The Ld. Sr-DR for the Revenue stated that assessee has not objected before Assessing Officer despite fully ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 8 participating during assessment proceedings, so now therefore the assessee is preclude raising such additional ground before Tribunal. The ld Sr DR for the revenue also filed his detailed written submissions on the additional grounds of appeal, with various case laws, which is taken on record. On merit the ld Sr DR for the revenue supported the order of lower authorities and would submits that lower authorities have passed a very detailed and reasoned order by explaining the modus operandi of penny stock. The assessee is also beneficiary of such penny scrip. 9. We have considered the rival submissions of both the parties and have gone through order of lower authorities carefully. We have also deliberated the case law relied upon by Ld. AR of the assessee. We find that on similar set of facts in assessees group case, the SMC bench of this Tribunal in Neelu Mahansaria ITA No. 893/Srt/2023 dated 18.01.2024, by following its earlier decision in ITA No. 197/Srt/2023 dated 17/08/2023 passed the following order, “4. We have considered the submissions of both the parties and perused the orders of lower authorities carefully. We find that the grounds of appeal raised in the present appeal is identical to the grounds of appeal raised in appeal for A.Y. 2014-15 except the figure of consideration of long term capital gain/share transaction. We find that Ground No.1 of the present appeal is similar with the Ground No. 1 of appeal for AY 2014-15. We further find on similar set of facts, SMC Bench of this Tribunal in ITA No. 197/Srt/2023 for the A.Y. 2014-15 dated 17/08/2023 passed the following order: “9. I have considered the submission of both the parties and perused the order of lower authorities carefully. I find that the Assessing Officer doubted the transaction of assessee on the basis of report of Investigation Wing Kolkata. I further find that SEBI has initiated investigation in respect of Mishka Finance & Trading Ltd. I find that merely because there was allegation and investigation ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 9 was done by SEBI against the company and assessee cannot be said to have enter into ingenuine transactions. So far as assessee is concerned, she has no control over the activities of the brokers or price manipulation. I further find that assessee has furnished complete evidence including contract note of shares, demat details, detail of bonus shares. However, no adverse evidence was brought against such evidence. Nor the assessing officer made adverse comment on such evidences. I further find that SEBI made a through inquiry against Mishka Finance & Trading Ltd. and vide order dated 05.10.2017 that no adverse materials were found in the investigation report with respect to prima facie violation. 10. I find that Hon'ble jurisdictional High Court in the case of Himani M. Vakil (supra) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. I further find that Hon'ble jurisdictional High Court in the case of Parasben Kasturchand Kochar (supra) also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished by Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. 11. Further I find of Hon'ble Bombay High Court in the case of PCIT Vs. Indravadan Jain, HUF (supra) in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction. ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 10 12. I find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, I do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. In the result, the addition of undisclosed income under section 68 is deleted. Considering the fact that I have accepted the LTCG by deleting the addition made under section 68, therefore the addition of alleged commission payment is also deleted. This ground of assessee is also allowed.” 5.Considering the fact that the assessee has raised Ground No.1 of present appeal is identical with the grounds of appeal in AY 2014-15, there is no variation in the facts of the case of present year, except variation of figure of additions, therefore, following the principle of consistency, ground of appeal No.1 raised by the assessee is allowed.” 10. Considering the facts that facts of case in hand is similar, therefore following the principal of consistency, the grounds of appeal raised on merit by assessee are found to be covered in favour of the assessee, hence the ground No. 2 of appeal is allowed. Further considering the facts that we have allowed the appeal on merit, therefore specific adjudication on additional ground of appeal have become academic. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 20/01/2025. Sd/- Sd/- (BHAGIRATH MAL BIYANI) (PAWAN SINGH) लेखा सद˟/Accountant Member Ɋाियक सद˟/Judicial Member सूरत / Surat Dated: 20/01/2025 Dkp Outsourcing Sr.P.S* ITA No.151/SRT/2024 (A.Y.15-16) Umesh P. Mahansaria (HUF) 11 आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to :  अपीलाथŎ/ The Appellant  ŮȑथŎ/ The Respondent  आयकर आयुƅ/ CIT  िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, सूरत/ DR, ITAT, SURAT  गाडŊ फाईल/ Guard File By order/आदेश से, सहायक पंजीकार आयकर अपीलीय अिधकरण, सूरत "