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Atmiben Alpitkumar Doshi,, Sabarkantha, v. The ITO, SK Ward-4,, Himatnagar

Income Tax Appellate Tribunal

Jan 30, 2023

Judgment

Subsequent
References

CaseIQ

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Tribunal Opinion Summary: ITA No.940/Ahd/2018 (Assessment Year 2014-15)

Factual and Procedural Background

This appeal arises from an assessment for A.Y. 2014-15 concerning tax treatment of long-term capital gains (LTCG) claimed by the appellant on sale of shares of Kappac Pharma Limited and certain tuition income. The return of income was filed on 30.09.2014 declaring total income of Rs.2,76,000. The return was processed under section 143(1) on 20.12.2014, and notices under sections 143(2) and 142(1) were issued. The Assessing Officer (AO) issued further notices/summons, and the assessee did not appear.

Key factual points recorded in the assessment and reproduced in the order:

The assessee purchased 5,000 shares of Kappac Pharma Limited on 02.04.2012 at Rs.20 per share, where part of the purchase consideration (Rs.1 lakh) was paid in cash via off-market transactions.
The assessee sold 2,000 shares through a broker on 27.03.2014 (and submissions elsewhere indicate sale of shares on 21.11.2014 and sales through BSE at various dates) and claimed LTCG exempt under section 10(38).
The AO made an addition of Rs.13,47,989 by denying the claim of LTCG exemption under section 10(38) and treated the amount as unexplained income under section 68; the AO also made an addition in respect of tuition income (the order records an addition of Rs.1,90,000 while the grounds of appeal refer to Rs.1,80,000).
The AO relied on an investigation report (Investigation Wing, Kolkata) concerning penny stock activity in the scrip and conducted factual verification in the assessee's case.

The assessee appealed to the CIT(A); the CIT(A) confirmed the additions by order dated 12.02.2018. The present appeal to the Income Tax Appellate Tribunal (Ahmedabad "SMC" Bench) was heard and decided on 30.01.2023, where the Tribunal dismissed the appeal.

Legal Issues Presented

Whether the appellant's claim of exemption for long-term capital gains under section 10(38) on sale of shares of Kappac Pharma Limited is admissible, having regard to the AO's view (and an investigation report) that the purchase/sale transactions were non-genuine or part of accommodation/rigging of penny stock prices.
Whether amounts shown as tuition income (referred to in the record as Rs.1,80,000 in the grounds and Rs.1,90,000 in the assessment narrative) could be treated as explained income or were liable to be treated as unexplained income under section 68.

Arguments of the Parties

Appellant's Arguments (Assessee / Authorized Representative)

The AO relied on the Investigation Wing report (DIT, Kolkata) without bringing on record any case‑specific material demonstrating that the assessee's purchases were non‑genuine; no cross‑enquiries were carried out by the AO in respect of the assessee's transactions.
The purchase and sale of shares were supported by documents: demat statement, debit note, share certificate; shares were held for approximately 24 months; sale consideration was received through banking channels; STT and other government levies were paid — therefore conditions for exemption under section 10(38) were met.
The assessee submitted that merely because the company was treated as a penny stock does not render a genuine investment non‑genuine; the securities had not been delisted from BSE and the company was complying with requirements.
The AO failed to produce any cogent material to show the assessee was a beneficiary of arranged accommodation entries; reliance on general and vague information from the Kolkata report was insufficient and violated principles of natural justice.
The appellant relied on Tribunal and High Court decisions (identified in submissions) to support deletion of the additions.

Respondent's Arguments (Departmental Representative)

The investigation report stated that the Kappac Pharma Limited scrip was delisted for the relevant period and the AO rightly made the addition by denying section 10(38) exemption.
The Revenue relied on the assessment order and the CIT(A)'s order in support of sustaining the additions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Prakash Javia HUF vs. ITO, ITA No.464 & 465/Ind/2019, order dated 25.05.2021 (Indore Bench)	Relied upon by the appellant to support deletion of addition relating to allegedly bogus LTCG.	The appellant relied on this decision in submissions; the Tribunal's order records the reliance but does not expressly adopt this precedent in its reasoning.
Ayushi Jain, Kolkata vs. ITO, ITA No.2551/Kol/2018, order dated 09.08.2019 (Kolkata Bench)	Relied upon by the appellant to challenge the addition of LTCG on grounds of genuineness of transactions.	The appellant cited this decision; the Tribunal's order notes the reliance but the Tribunal reached its conclusion on the facts of the present case and other authorities.
PCIT vs. Jagat Pravinbhai Sarabhai, R/Tax Appeal No.332 of 2022, order dated 04.07.2022 (Gujarat High Court)	Relied upon by the appellant to support arguments against additions based on investigation reports.	Recorded as relied upon by the appellant; the Tribunal's decision does not indicate reliance upon this High Court decision to rule for the assessee.
Smt Reshmiben Pa. Kanugo vs. ITO, ITA No.2131/Ahd/2018, order dated 28.02.2022 (Tribunal)	Relied upon by the appellant in support of deletion of additions on similar factual/legal grounds.	The appellant cited this Tribunal decision; the Tribunal's order notes the citation but determined the present appeal on its own assessment of facts and other authority.
Udit Kalra, 2019(4)TM/834 (Hon'ble Delhi High Court)	Held that transactions in the Kappac Pharma Limited scrip were not genuine and were bogus (as stated in the Tribunal's reasoning).	The Tribunal explicitly referred to this Delhi High Court decision as having dealt with the Kappac Pharma Limited scrip and held the transactions not genuine; the Tribunal treated this authority as supporting the AO/CIT(A)'s conclusion and dismissed the appeal.

Court's Reasoning and Analysis

The Tribunal reviewed the factual matrix and material on record and proceeded as follows:

It noted the undisputed fact that the assessee purchased 5,000 shares of Kappac Pharma Limited on 02.04.2012 at Rs.20 per share, and that the purchase involved cash and was off-market; the assessee later sold shares through the Bombay Stock Exchange.
The Tribunal observed the AO's factual findings — in particular that the market price was Rs.17.45 on 02.04.2012 whereas the assessee purchased at Rs.20 outside the exchange — and that the AO did not rely solely on the investigation report but carried out verification in the assessee's own case.
The Tribunal accepted that the purchase took place outside the regular stock exchange and that the manner of purchase (off-market, cash element, discrepancy with market price) gave rise to suspicion that the purchase was not genuine; that circumstance, when viewed with other material, supported the AO's conclusion that the LTCG claim was not genuine.
The Tribunal considered the appellant's documentary submissions (demat statement, debit note, share certificate, etc.) and found that these did not rebut the incriminating factual circumstances; the Tribunal also noted the assessee's awareness of brokers dealing in penny stocks.
Importantly, the Tribunal relied upon the Delhi High Court decision in Udit Kalra (2019(4)TM/834), which had dealt with the Kappac Pharma Limited scrip and held the transactions not genuine; the Tribunal viewed that authority as relevant and supportive of the AO/CIT(A) findings.
On this basis — combining the AO's factual findings, verification specific to the assessee's transactions, and the cited authority concerning the scrip — the Tribunal concluded that denial of exemption under section 10(38) and treatment of the amount as unexplained was justified in the facts of the case.

The Tribunal therefore dismissed the appeal, finding that the factual circumstances in the assessee's own case supported the AO's conclusion and that the appellant's submissions and cited precedents did not persuade the Tribunal to disturb the assessment.

Holding and Implications

APPEAL DISMISSED.

Direct effect on the parties:

The Tribunal upheld the assessment and the order of the CIT(A), thereby sustaining the addition of Rs.13,47,989 by denying the appellant's claim of exemption for LTCG under section 10(38) (i.e., the addition stands as recorded in the assessment).
The Tribunal also dismissed the appellant's challenge to the addition relating to tuition income (noting the differing figures in the record), thereby leaving the AO/CIT(A) treatment intact.

Broader implications:

The Tribunal decided the matter on the facts of this case and by reference to an earlier decision on the same scrip; the order does not purport to lay down a new legal principle. No new precedent was established by this decision beyond its application to the facts before the Tribunal.

Source: Order of the Income Tax Appellate Tribunal, Ahmedabad "SMC" Bench, dated 30.01.2023, in ITA No.940/Ahd/2018 — Atmiben Alipitkumar Doshi v. ITO. Summary prepared exclusively from the provided opinion text.

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ITA No.940/Ahd/2018 A.Y. 2014-5

Page 1 of 6

IN THE INCOME TAX APPELLATE TRIBUNAL

AHMEDABAD "SMC" BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.940/Ahd/2018

Assessment Year: 2014-15

Atmiben Alipitkumar Doshi, vs. The Income Tax Officer, 18, Mahavirnagar Society, S.K. Ward - 4, Palace Road, Himmatnagar,

Himmatnagar, Dist. Sabarkantha - 383 001. Dist. Sabarkantha - 383 001.

[PAN - AOEPD 5072 P]

(Appellant) (Respondent)

Assessee by : Shri Vipul Khandhar, AR

Respondent by : Shri R.R. Makwana, Sr. DR Date of hearing : 16.01.2023

Date of pronouncement : 30.01.2023

O R D E R

This appeal is filed by the Assessee against the order dated 12.02.2018 passed by the CIT(A)-2, Ahmedabad for the Assessment Year 2014-15.

2. The grounds of appeal raised by the assessee are as under :-

"1. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.13,47,989/- on account of disallowance of Long Term Capital Gain [LTCG] on sale of shares of Kappac Pharma Limited merely on surmises and conjectures based on various allegations/observations made by the AO in the assessment order which are not case specific and subject matter of the show-cause, contrary to the facts of the case and thus highly irrelevant and not applicable to the appellant's case.

1.1 The learned CIT (A) has grievously erred in not appreciating the fact that the AO though relied upon the finding of the investigation report of the DIT - Kolkata made the addition while treating the purchase of shares as non genuine and thereby sale of shares as non genuine. The learned CIT (A) has accordingly grievously erred in failing to appreciate the fact that if the purchase of shares were treated as non-genuine then how the delivery shares taken and demated in the demat form and delivery of shares given on sale of shares given in view of the fact that sale of shares was not denied by the AO in the assessment order.

1.2 The learned CIT(A) has grievously erred in not appreciating the fact that the enquiries made by the AO with the SEBI and enclosed with the assessment order has no relevance for the impugned addition of LTCG on sale of shares of Kappac Pharma Ltd. made by the AO and confirmed by him in the appellate order.

1.3 The learned CIT (A) has grievously erred in not appreciating the fact that the AO had failed to furnish material/evidences on the basis of which the AO has alleged that appellant was one of the beneficiary of alleged arranged accommodation entries of bogus LTCG. In view of the said fact, the impugned addition even otherwise requires to be deleted, the same being in flagrant violation of the principles of natural justice and equity.

1.4 The learned C1T(A) has erred in not considering and appreciating the comprehensive submissions filed before him justifying the genuineness of the transactions and LTCG earned thereon more particularly the fact that the acquisition and sale of shares of Kappac Pharma Limited is supported by valid documents, the payment for the purchase of shares has been duly recorded in books, the sale consideration has been received through banking channels, the shares have been held for approx. 24 months prior to the date of sale and have been duly reflected in demat account, the delivery of shares is through demat A/c., the existence of the party from whom the appellant has purchased or the broker through whom the shares are sold has not been disputed, the STT and other Govt. levies on sale of shares have been duly paid and thus all the conditions laid down under the provisions of law for claiming exemption u/s 10(38) of the Act have been duly fulfilled. The impugned addition of Rs.13,47,989/- thus being based on mere surmises and conjectures is wholly unjustified and bad in law.

1.5 The learned CIT(A) has failed to appreciate the fact that the AO has miserably failed to bring on record any cogent material/evidences which could establish/prove that the transactions of sale of shares of Kappac Pharma Limited and LTCG earned thereon is a sham transaction and in the nature of accommodation entry liable to be disallowed except relying upon general and vague information in the report received from Kolkata Investigation Wing.

2. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs.1,80,000/- made by the AO while treating the Tuition income shown by the appellant in the return of income as unexplained income by invoking the provisions of 68 of the Act without bringing on record any material/evidences to negate the explanation/facts stated by the appellant. In view of facts, circumstances and evidences filed, the income of Rs.1,80,000/- requires to be treated as tuition income as shown by the appellant and not unexplained income u/s.68 of the Act."

3. The return of income for A.Y. 2014-15 was filed on 30.09.2014 declaring total income of Rs.2,76,000/-. The said return was processed under Section 143(1) of the

Income Tax Act, 1961 on 20.12.2014 and notice under Section 143(2) of the Act dated 18.09.2015 was issued and duly served upon the assessee. Thereafter, notice under Section 142(1) of the Act along with questionnaire dated 13.06.2016 was issued. During the course of assessment proceedings, notice under Section 142(1) and summon under Section 131(1A) of the Act was issued to the assessee and witness thereby asking the assessee to furnish certain documents/ details /evidences/ clarification to finalise the assessment proceedings. The assessee did not appear before the Assessing Officer. The Assessing Officer observed that the assessee derived income from salary, tuition income, agricultural income, interest income and also business income related to share trading therein the LTCG was claimed and exempted under Section 10(38) of the Act. The Assessing Officer observed that the assessee derived Rs.13,47,989/- as LTCG from the sale of the only one scrip i.e. Kappac Pharma Limited and the assessee purchased 5000 shares on 02.04.2012 at Rs.20/- per share and sold 2000 shares through brokers. The payment of Rs.1 Lakh for these shares were made in cash while purchasing the same through off market transactions. The assessee sold 2000 shares on 27.03.2014 through ASE Capital Markets Limited. The Assessing Officer observed that there was enquiry related to penny stock companies and this particular scrip was under investigation. Therefore, the Assessing Officer after giving detailed reasons made addition of Rs.13,47,989/- thereby denying the claim of LTCG under Section 10(38) of the Act treating the same as unexplained income under Section 68 of the Act as well as addition of Rs.1,90,000/- as tuition income traded as unexplained income under Section 68 of the Act.

4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. The Ld. AR submitted that no cross enquiries were carried out by the Assessing Officer before treating the LTCG as share transaction in the assessment order. There was no mention in the Assessment Order regarding LTCG as share transition and the Assessing Officer has not related any specific information/material evidences pertaining to the assessee from the report of the Investigation Wing of the Kolkata and as to what documents were in the possession of the Assessing Officer to establish the allegation of bogus LTCG claim. The shares of Kappac Pharma Limited

was held by the assessee for more than 12 months prior to selling the same. The question of treating the purchase of shares as non-genuine and consequently sale of shares and LTCG as unexplained income of the assessee does not arise, more particularly in absence of even an iota of concrete material or evidence brought on record by the Assessing Officer is only on surmises and assumption basis. The Ld. AR further submitted that merely because the said company i.e. Kappac Pharma Limited has been treated as a penny stock company does not in any way make the genuine investment of the assessee as non-genuine/bogus investment. The Assessing Officer failed to bring on record any material evidences so as to arrive at the conclusion that the assessee is involved in the alleged activity of rigging of price of Kappac Pharma Limited in connivance with the Stock Exchange and Brokers so as to conclude that the share price of the company in question as per market was not genuine price but inflated or deflated one governed by so called accommodation entry provider. Ld. AR further submitted merely the trading in the said scrip has been suspended by the BSE i.e. stock exchange and the said scrip is not delisted the BSE as evident from the website of BSE i.e. stock exchange, the said company is regularly complying with the Rules and regulations of relevant laws by Mina necessary/required documents with the stock exchange till date. The Ld. AR further submitted that the assessment order solely based on Investigation Wing report and, therefore, the addition may be deleted. Ld. AR relied upon the decision of Tribunal in the case of Prakash Javia HUF vs. ITO, ITA No.464 & 465/Ind/2019, order dated 25.05.2021 (Indore Bench), case of Ayushi Jain, Kolkata vs. ITO (ITA No.2551/Kol/2018 order dated 09.08.2019 (Kolkata Bench). Ld. AR also relied upon the decision of Hon'ble Gujarat High Court in case of PCIT vs. Jagat Pravinbhai Sarabhai, R/Tax Appeal No.332 of 2022, order dated 04.07.2022 and Tribunal's decision in case of Smt Reshmiben Pa. Kanugo vs. ITO being ITA No.2131/Ahd/2018, order dated 28.02.2022. Ld. DR submitted that the investigation report has clearly stated that the scrip mainly of Kappac Pharma Limited was delisted for the particular period and, therefore, the Assessing Officer has rightly made the addition and denied the claim of LTCG under Section 10(38) of the Act.

6. The Ld. DR relied upon the assessment order & the order of CIT(A).

7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has purchased the shares in the scrip from Kappac Pharma Limited on 02.04.2012 being 5000 shares at Rs.20/- per share. The said purchase was in cash originally. This fact was undisputed. The assessee, thereafter, submitted before us that on 21.11.2014 the assessee sold 5000 shares in Bombay Stock Exchange at different dates and gained Rs.675 per share within 24 months. Thus, there was exorbitant scrip increase from 20.04.2012 to 27.12.2014. The Assessing Officer also made observations in the Assessment Order that the assessee bought shares at Rs.20./- when the market price was of Rs.17.45 on 02.04.2012 in fact. There was no basis from the analysis of the company that Kappac Pharma Limited scrip price shares. These objections are separate objections by the Assessing Officer from the investigation report. The assessment order is not solely based on investigation but the Assessing Officer has verified each aspect about increase in the share and how transaction took place in assessee's own case. Though the assessee has sold the scrip through Bombay Stock Exchange, it has not purchased from the stock exchange market and, therefore, the conclusion of the Assessing Officer was based on factual circumstances in assessee's own case. The purchase of Kappac Pharma Limited share is in fact appears bogus in nature as the scrip when having share price of Rs.17.45 was purchased by the assessee at Rs.20/- outside the regular stock exchange. The claim of the Ld. AR that the assessee has done the transaction and submitted his demat statement as well as transaction statement along with debit note and share certificate does not shun away the aspect that the assessee was very well aware about the brokers in respect of penny stock. Therefore, the contentions as well as the decision submitted by the assessee are not relevant in the present case. In fact, in case of Udit Kalra, 2019(4)TM/834, decided by the Hon'ble Delhi High Court has dealt with 'Kappac Pharma Limited scrip' and held that the transaction in the said scrip was not genuine and bogus. Therefore, the Assessing Officer and the CIT(A) has rightly denied LTCG exemption under Section 10(38) of the Act to the assessee. Appeal of the assessee is, therefore, dismissed.

8. In the result, appeal filed by the assessee is dismissed.

9. Order pronounced in the open Court on this 30^thday of January, 2023. Sd/-

(SUCHITRA KAMBLE)

Judicial Member

Ahmedabad, the 30^th day of January, 2023 PBN/*

Copies to: (1) The appellant

(2) The respondent

(3) CIT

(4) CIT(A)

(5) Departmental Representative

(6) Guard File By order

UE COPY

Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad