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Mukta Gupta v. Ito

Income Tax Appellate Tribunal
Nov 26, 2018
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

I.T.A. No. 2766/DEL/2018 Assessment Year: 2014-15 and I.T.A. No. 2767/DEL/2018 Assessment Year: 2014-15

Attorney(S)

S/Shri Akhilesh Kumar, Adv. & Pushkar Pandey, Advocate ;

Shri S.L. Anuragi, Sr.D.R., Advocate

JUDGES

Amit Shukla, J.M.

ACTS

u/s 10(38) of the I.T. Act

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Structured Summary of Tribunal Opinion (Amit Shukla, JM) — Pronounced 26 Nov 2018

Factual and Procedural Background

The appeals were filed by assessees against orders of the learned CIT (Appeals), Ghaziabad dated 16.01.2018 relating to the assessment under section 143(3) for Assessment Year 2014-15 (I.T.A. No.2767/DEL/2016). The matters of Mohan Lal Agarwal (HUF) and Mukta Gupta were heard together and disposed of by a consolidated order because the facts were common.

The primary grievance in both appeals was the disallowance of exemption claimed under section 10(38) of the Income-tax Act on Long Term Capital Gains (LTCG) arising from sale of listed equity shares (notably shares of M/s. CCL International Ltd. or similar scrips). In Mohan Lal Agarwal (HUF)'s case, the assessee claimed exemption of Rs.24,60,241/-. In Mukta Gupta's case a similar disallowance (Rs.19,31,075/- in one reference) was challenged.

Brief chronology and salient factual points (as set out in the opinion):

  • The HUF (Mohan Lal Agarwal) is stated to carry on business in trading of iron and steel and sold shares of M/s. CCL International Ltd. on 12.12.2013.
  • The opinion contains inconsistent statements about the purchase consideration: an early paragraph records purchase for Rs.97,800 on 11.05.2009; later narrative records purchase of 10,000 shares on 11.05.2009 @ Rs.16.30 per share for a total of Rs.1,63,000 (with Rs.20,000 cash and Rs.1,43,000 by cheque). The shares were later sub-divided such that 10,000 became 50,000 shares and 30,000 of those were sold in FY 2013-14.
  • The Assessing Officer (AO) and the learned CIT (A) doubted the genuineness of the transactions and treated the sale proceeds as accommodation/ bogus entries, making additions under section 69A (and applying section 115BBE), while the assessees relied upon exchange-traded evidence (contract notes, STT payment, demat transfers, RTGS receipts etc.) to claim legitimate LTCG exemption under section 10(38).
  • For Mukta Gupta the record contains an additional factual element: a direction by the Joint Commissioner of Income Tax (JCIT), Range-2, Ghaziabad dated 29.02.2016 directing the AO to treat the gain as genuine and allow exemption u/s 10(38) after examining the AO's report.

Legal Issues Presented

  1. Whether the exemption under section 10(38) of the Income-tax Act is available to the assessees in respect of Long Term Capital Gain arising on sale of the listed equity shares in question.
  2. Whether the Assessing Officer was justified in treating the sale proceeds as unexplained money and adding the same to income under section 69A (and applying section 115BBE), on the basis that the transactions were alleged accommodation/bogus entries.

Arguments of the Parties

Appellants' (Assessees') Arguments

  • The transactions were genuine sales of listed shares and disclosed in the return. In Mohan Lal Agarwal (HUF)'s case, the assessee produced evidences: contract note, proof of STT payment, trading through a named broker (Trustline Securities), sale executed on the Bombay Stock Exchange (online market), consideration received by RTGS into bank account, and transfer of shares from the seller's demat to the assessee's demat account.
  • The purchase had been made by cheque (documented in bank statements) and was reflected in earlier year's affairs; the holding period exceeded the period for long-term classification. The assessee highlighted that the same scrip had been accepted by the Department in other scrutiny assessments in earlier or subsequent years.
  • There was no material on record to show that the assessee was a beneficiary of any accommodation entry, nor any SEBI final adverse action against the company in question; therefore, mere price movement or conjecture was insufficient to displace the exhibited documentary proof of genuineness.
  • For Mukta Gupta, the JCIT had examined records and directed the AO to treat gains as genuine and to allow exemption under section 10(38); this direction was relied upon as determinative.

Respondent's (Revenue / Department Representative) Arguments

  • The Department relied on the findings of the AO and the learned CIT(A) that the scrip's price rose astronomically and that the pattern of transactions suggested use of this scrip for accommodation entries. Investigation (DIT (Investigation), Kolkata) had reportedly found instances where this scrip was used to provide accommodation entries.
  • On the basis of the price movement, the AO inferred that the rise was not related to fundamentals and concluded the transactions were sham, justifying addition under section 69A (and charging under section 115BBE).
  • The Department urged confirmation of the AO/CIT(A) findings and the addition made treating the sale consideration as unexplained money.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in the following steps, using only the materials and findings recorded in the impugned orders and the papers placed before it:

  1. Fact-Recording: The Tribunal summarized the factual matrix as shown on record — purchase date and mechanism, subdivision of shares, dematTransfers, sale dates and sale proceeds, and the documentary evidence produced by the assessee (contract note, STT payment, broker route, sale on BSE online market, RTGS receipt to bank, demat transfer).
  2. Evaluation of AO/CIT(A) Basis for Doubt: The Tribunal noted the AO's reliance on price movements (a long series of daily quoted prices from 06.02.2010 to 19.12.2016) and the AO's general discussion of the modus operandi of accommodation entries. The AO had recorded a statement of the HUF's karta and extracted various points (e.g., that the karta began dealing in shares only at that time, the shares were purchased on accountant's advice, etc.) and concluded transactions were sham.
  3. Examination of Documentary Proof: The Tribunal observed that purchase by cheque was reflected in the assessee's bank account and earlier returns, and that the sale consideration was supported by the aforementioned documentary evidence. It further noted that the AO and CIT(A) had not produced material showing the assessee was a beneficiary of accommodation entry in any recorded investigation.
  4. Assessment of Price Movement Evidence: Although AO/CIT(A) displayed the scrip's price movement, the Tribunal found the movement to show increases and decreases "like a normal scrip" and emphasized that the scrip had been traded across the years on the stock exchange.
  5. Onus and Rebuttal: The Tribunal emphasized that once the assessee produced supporting documentary evidence showing bank payments and exchange-traded sale, the onus shifted to the Department to demonstrate that these documents were fabricated or that the assessee was clandestinely routing unaccounted money. The Tribunal found no evidence that the Department conducted any inquiry or produced any material to rebut the documentary proofs.
  6. Specific Additional Factor in Mukta Gupta: The Tribunal recorded that the JCIT, after examining records, directed the AO to accept the transaction as genuine and to allow exemption u/s 10(38) because the transactions were carried out on which STT had been paid; that direction was treated as a significant administrative finding favourable to the assessee.
  7. Conclusion of Analysis: Because the assessee's transactions were executed through the recognized stock exchange, supported by demat transfers, broker notes, STT payment and electronic receipt of sale proceeds, and because the Department failed to rebut those materials or show the assessee to be a beneficiary of accommodation entries, the Tribunal held it impermissible to treat the sale proceeds as unexplained credit under section 69A. Consequently, the Tribunal determined that the assessees were entitled to the benefit of exemption under section 10(38) for LTCG on sale of the listed equity shares.

Holding and Implications

APPEALS ALLOWED

Direct holding and operative consequences (as stated in the opinion):

  • The Tribunal allowed the appeal of Mohan Lal Agarwal (HUF) and held that the amount credited to the assessee's account arose from sale of shares and that the assessee is entitled to Long Term Capital Gain exemption under section 10(38).
  • In Mukta Gupta's case, the Tribunal relied on the JCIT's direction to the AO to accept the transaction as genuine and allow exemption under section 10(38); accordingly, the addition made by the AO treating the gain as unexplained money was deleted.
  • Net effect: The additions under section 69A (and tax treatment under section 115BBE as applied by the AO/CIT(A)) were vacated for the assessees in these appeals; the claimed exemptions under section 10(38) were allowed.

The opinion does not announce or apply any newly stated legal principle as a binding precedent; it resolves the specific factual controversies on the record before the Tribunal.

Order pronounced in open Court on: 26th November, 2018.

Judicial Member: Amit Shukla

Show all summary ...

PER AMIT SHUKLA, J.M.: The aforesaid appeals have been filed by the assessee against separate impugned orders of even date, 16.01.2018, passed by ld. CIT (Appeals), Ghaziabad for the quantum of assessment passed u/s. 143(3) for the Assessment Year

I.T.A. No.2767/DEL/2016 2 2014-15. Since facts involved in assessees appeals are common, therefore, same were heard together and are being disposed of by way of this consolidated order. In the grounds of appeal, the assessee has challenged the disallowance of exemption claimed u/s.10(38) for Rs.24,60,241/- being Long Term Capital Gain on sale of listed equity shares in the name of Mohan Lal Agarwal (HUF) and similar disallowance of Rs.19,31,075/- in the case of Mukta Gupta.

2. We will first take up the appeal in the case of Mohan Lal Agarwal (HUF), wherein the brief facts are that the assessee is a HUF which carried out business of trading in iron and steel. The assessee has claimed exemption u/s.10(38) of Rs.24,60,241/- on Long Term Capital Gain resulting on sale of shares of M/s. CCL International Ltd. which was purchased for Rs.97,800 on 11.05.2009 and was sold on 12.12.2013 for Rs.26,06,548/- in the assessment year 2014-

15. Learned AO observed that assessee had purchased 10,000 shares of M/s. CCL International Ltd. on 11.05.2009 @ Rs.16.30 per share though face value of the shares were Rs.10 each and these were locked for a period of one year ten months as per SEBI Regulation and trading of the shares started from 28.11.2011. Thereafter he has quoted the price of the said scrip in the Bombay Stock Exchange from 06.02.2010 to 19.12.2016. The moment of the share price for each day starting from 6th February, 2010 to 19th December, 2016 has been incorporated in the impugned order and from the trend of share price moment, he held that the price of these shares had risen manifolds and thereby inferred that

I.T.A. No.2767/DEL/2016 3 the reason for astronomical rise was not related to any fundamentals of market. Without any material or information on record that the assessee had done any bogus transaction or has received any accommodation entry or assessees name has been cropped as a beneficiary of accommodation entry in any of the investigation, has held that there are various instances whereby entry providers arrange accommodation entry for bogus Long Term Capital Gain. Pages after pages AO has referred to modus operandi as to how the accommodation entry is provided by the entry operators. A statement on oath of the Karta of the HUF was also recorded by him on 19.12.2016 which has been incorporated in the impugned order and on the basis of the statement he has deduced following points.

1. That the karta of the HUF only started dealing in share transaction at the time when he purchased these shares and got a D-mat account only in the year 2010.

2. The company whose shares the assessee dealt in split the shares in F.Y. 2011-12 and the total number of shares held by the assessee increased to 50000 shares from 10000 shares of which the assessee sold 30000 shares in F.Y. 2013-14 for Rs. 87/- per share.

3. The assessee only dealt in these shares of M/s CCL International Ltd. and has neither purchased nor sold any other share which again leads to suspicion.

4. The shares of the company were purchased on the advice of his accountant.

5. The assessee didn't watch the price of the shares purchased/sold and only used to enquire about it once in a while.

6. The aforesaid facts clearly indicate that the transaction is a sham.

I.T.A. No.2767/DEL/2016 4

3. After referring to various judgments and general discussion about how this minus of bogus accommodation entry prevailing in the country, he held that the entire sale consideration received from sale of scrip is to be added u/s.69A and thereby made addition of Rs.26,05,548/-

4. Ld. CIT (A) too has confirmed the said addition and made observations that no evidence in support of genuineness of purchase of shares and justification of purchase price of the share has been submitted by the assessee. Further, M/s. CCL International Ltd. has been found to be penny stock by DIT (Investigation) Kolkata. After discussing various case laws, he has confirmed the addition after concluding as under: 5.1.14 Considering that the purchase of shares has not been made online on stock exchange. There are no proper bills supporting the purchase price. The details submitted by the appellant failed to substantiate the genuineness of transactions in so far as purchase of shares is concerned. The shares transferred by the appellant reflect such a huge price rise in the shares of a defunct company without corresponding fundamentals, corroborated by information received from Investigation Wing of Department that the shares have been traded violating the SEBI's guidelines. In view of these facts it cannot be said that appellant has discharged the primary onus of proving the genuineness of transactions. However, it is noted that AO has added the entire sale consideration u/s 69A however, actual money introduced by the appellant in books of accounts during the year is long term capital gain i.e. Rs. 26,05,548/- (-) Rs. 1,63,000/- i.e. Rs. 24,42,548/- is the addition confirmed u/s 69A r.w.s 115BBE. Hence, these grounds of appeal are partly allowed while confirming action of

I.T.A. No.2767/DEL/2016 5 AO of making an addition on account of bogus long term capital gain claimed u/s 10(38).

5. Before us, ld. counsel for the assessee submitted that Assessee had purchased 10,000 shares on 11.05.2009 @ 16.30 per share for a total amount of Rs.1,63,000/- out of which Rs. 20,000/- was paid in cash and balance Rs.1,43,000/- through cheque. Later on, said shares were sub divided into 50,000/- shares in August, 2011. Said shares were purchased from the direct allottee, Mr. Himanshu Pokhariyal and as such shares were transferred directly from the d-mat a/c of Himanshu to the Demat of assessee with Allied Services Private Limited through e-transfer. Out of 50,000 shares 20,000 shares were sold in previous year and balance 30,000/- sold on 12.12.2013 i.e. in the relevant year. Said sale is duly declared in return. Sale under question is supported with following evidences/details:-

a) Contract note giving date, time settlement details etc

b) STT is paid on transaction

c) Transaction is through Trustline Securities

d) Sale is made on online market of Bombay Stock Exchange

e) Consideration is received electronically in bank through RTGS

f) Shares are transferred from Demat Account.

6 Shares were purchased on 11.05.2009 and were sold on 12.12.2013, and therefore, holding period of shares was more than 4 years and 7 months. Even after entering in

I.T.A. No.2767/DEL/2016 6 Demat of assessee holding period was 3 years and 8 months. He further submitted that rate of the said scrip at BSE on 06.02.2010 to 09.06.2016 was as per the trading norms and cap permitted by SEBI and the said scrip was regularly traded for six years. During the period, the highest rate was over Rs.600/-, however when the assessee sold it was Rs.87/- per share on 12.12.2013. The Assessing Officer has not found any material/ information against the assessee nor against the company, M/s. CCL International Ltd. Besides, there is no allegation/statement of any party that the said transaction or even dealing in shares of the company was for bogus capital gain. Neither the said company has been blacklisted by SEBI nor has it been named in the list of Shell Company uploaded by SEBI on net. In the statement recorded by the Assessing Officer, assessee has given all the details as asked and no adverse inference can be drawn from the said statement. He also pointed out that the Income Tax Department itself has accepted the transaction of Long Term Capital Gain/Short Term Capital Gain in the case of M/s. CCL International Ltd. not only in the current year but also in the previous years in several cases in scrutiny proceedings. Thus, without any material on record, simply by general observation and conjectures, no adverse inference could have been drawn. He also filed various judgments of this Tribunal and also assessment records and the assessment order in the case of other assessees, wherein similar scrip has been accepted qua the same assessment year or subsequent assessment year.

I.T.A. No.2767/DEL/2016 7

7. On the other hand, learned Department Representative has strongly relied upon the order of the Assessing Officer and ld. CIT (A) and submitted that such a huge rise in the price itself shows that everything was not right and in some of the case, Investigation Wing Kolkata has found that scrip of M/s. CCL International Ltd. were used for providing accommodation entries by the brokers. Thus, the order of the Assessing Officer and ld. CIT (A) needs to be confirmed.

8. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as mater referred to before us. As discussed above, assessee has purchased 10,000 shares on 11.05.2009 @ 16.30 per share for total amount of Rs.1,63,000/- out of which Rs.20,000/- was paid in cash and balance amount of Rs.1,43,000/- through cheque which was duly reflected in the statement of affairs in the return of income filed for Assessment Year 2010-11. Later on, the said shares were sub-divided into 50,000 shares in August, 2011. These shares were stated to be purchased from the direct allottee, Mr. Himanshu Pokhariyal and such shares were transferred directly from Demat account of the said person to the Demat account of the assessee through e-transfer with Allied Services Pvt. Ltd. Out of 50,000 shares, 20,000 shares were sold in previous year and balance amount of 30,000 shares have been sold in the relevant Assessment Year. It has not been brought on record

I.T.A. No.2767/DEL/2016 8 that the sale of similar shares in the earlier Assessment Year has been doubted or not. It is not in dispute that, in so far as purchase of shares through cheque is concerned the same were duly reflected in the bank account of the assessee and shown in the earlier years and the sale consideration is also supported by following evidences:-

a) Contract note giving date, time settlement details etc

b) STT is paid on transaction

c) Transaction is through Trustline Securities

d) Sale is made on online market of Bombay Stock Exchange

e) Consideration is received electronically in bank through RTGS

f) Shares are transferred from Demat Account.

9. Apart from that, it is not in dispute rather both Assessing Officer and ld. CIT (A) in their exhaustive order have incorporated the price movement of the said scrip right from 06.02.2010 to 09.12.2016 and on perusal of the same it is seen that there has been increase and decrease in the shares prices like a normal scrip and it is also not in dispute that the said shares were traded in all the years under the stock exchange. Before us, learned counsel has also placed the assessment orders for the Assessment Year 2013-14 and 2014-15 in the case of M/s. CCL International Ltd. passed u/s.143(3) to show that this company is genuine and regularly assessed to tax by the Department. From the perusal of the entire assessment order and ld. CIT (A) order, it

I.T.A. No.2767/DEL/2016 9 is seen that, nowhere there is any reference to any material or information so as to suggest that; Firstly, assessee has been found to be beneficiary of any bogus or accommodation entry in any of the investigation/searches carried out anywhere; Secondly, there is no material that any action has been taken by the SEBI against this company and such an action of black-listing this company had attained finality and; Lastly, it is also matter of record that the Department in other cases under scrutiny proceedings has accepted similar transaction of sale of shares of M/s. CCL International Ltd.

10. Nowhere the evidences filed by the assessee has been rebutted or any inquiry whatsoever has been conducted by the Assessing Officer or by the ld. CIT(A) to prove that assessee was involved in any clandestine manner for routing its own unaccounted money. If the assessee has filed the entire evidences relating to purchase which is mostly through cheque shown in the earlier years and also filed all the details of sale transactions and the shares which have been routed through Demat account and sold through stock exchange on a quoted price on that date, then onus shifts upon the Department to prove that all these evidences are only make believe documents and certain minimal inquiry is required to rebut all these evidences. As stated above, nowhere it has been found that assessee was in any manner found to be

I.T.A. No.2767/DEL/2016 10 beneficiary of any accommodation entry under any inquiry or investigation. Once all these transactions are duly proved by trading from stock exchange, then to hold the sale of shares as unexplained credit or as unexplained money cannot be upheld. Accordingly, we hold that the money credited in the account of the assessee is from the sale of shares and accordingly benefit of Long Term Capital Gain on sale of such listed equity shares have to be given.

11. In the result, the appeal of the assessee is allowed.

12. In the case of Mukta Gupta similar facts are permeating in this year also for the sale of similar shares. There is another additional factor that in this case a direction was issued by the learned Joint Commissioner of Income Tax, Range-2, Ghaziabad to accept the said transaction. The learned JCIT vide his direction dated 29.02.2016 has sought the Assessing Officers report and has given following finding:-

2. The application of the assessee has been examined and the A.O. vide this office letter dated 23 12.2016 was required to furnish his comment and the report submitted by the AO as under : During proceeding of the case, it has been found that the assessee has purchased the shares of Rs. 24,000/- by Account payee cheque No. 077429 dated 04.03.2013(Punjab National Bank] from the broker M/s Karvy Stock Broking Limited, C-7, Lohia Nagar, Ghaziabad. The shares have been sold after holding the shares for one year through SEBI Registered broker. The payment of Rs. 9,84,516/- has been received by RTGS after payment of STT. The assessee has claimed Exemption u/s

I.T.A. No.2767/DEL/2016 11 10(38] for the above transaction made also refer the various judgments pronounced by the courts'.

3. Assessee has filed his D-MAT statement from where it is observed that assessee is a regular investor & holds shares in many companies. The sale & purchase is through account payee cheque and immediately on purchase of shares in March, 2013, the same were reflected in his D-MAT account as on 31.03.2013 with M/s Karvy Stock Brokings.

4. All the details as per AO's questionnaire dated 02.12.2015 has been filed by the assessee. All documents filed appears to be genuine. The assessee has shares of many other companies as on 31.03.2013, the estimated market value as per D-MAT statement is 11.15 lacs.

5. The assessee has also filed price chart of the share company namely Effingo Textiles based on 30th Annual Report and price range of this company as reported is Rs. 56 to 102 between April, 2014 to Jan,2015. The SEBI has as a matter of surveillance stopped the trading of shares of this company w.e.f. 07.01.2015 but no adverse order has been passed by SEBI on this company for this manipulation.

6. In any case, even the AO has reported no adverse report in this case, therefore, AO is directed to treat the gain earned by him as genuine and allow exemption u/s 10(38) of the I.T. Act for which the transactions are carried out on which STT has been paid as per law.

13. The aforesaid direction of the JCIT to the Assessing Officer clearly clinches the issue in favour of the assessee in both the cases. Thus, the addition made by the Assessing Officer by disallowing the Long Term Capital Gain and treating as unexplained money is deleted.

I.T.A. No.2767/DEL/2016 12

14. In the result, the appeals of both the assessees are allowed. Order pronounced in the open Court on 26th November, 2018. Sd/- [AMIT SHUKLA] JUDICIAL MEMBER DATED: 26th November, 2018 PKK:

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