Appel v. Sh. Hitesh Gandhi, Bhatti Colony, Chandigarh Road, Nawanshahar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT |CHANDIGARH. ITA No. 18 of 2017 (O&M)Date of decision: 16.02.2017 The Pr. Commissioner of Income Tax (Central), Ludhiana ..-.-- Appel Vs. Sh. Hitesh Gandhi, Bhatti Colony, Chandigarh Road, Nawanshahar. ..-.Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MR. JUSTICEK RAMENDRA JAIN. Present: Mr. Rajesh Katoch, Advocate for the appellant. Ajay Kumar Mittal,J. 1,This appeal has been preferred by the appellant-revenue underSection 260-A of the Income Tax Act, 1961 (in short, “Act’) against theorder dated 20.07.2016, Annexure A-III, passed by the Income TaxAppellate Tribunal, Amritsar Bench, Amritsar (in short, “* the Tribunal’) inITA No.129(Asr)/2014, for the Assessment Year 2008-09, claimingfollowing substantial questions of law. (i)“Whether on the facts and in the circumstances of the case,the Hon’ble Income Tax Appellate Tribunal, has erred in law inupholding the order of the CIT(A), deleting the addition of | =2,/8,26,685/-, made by the AO on account of sham share|transactions, ignoring an important aspect that the transaction ofShares showing their purchase price atz11,00,000/- and saleconsideration at=2,91,32,850/- within a period of less than twoyears/purchase of shares made in cash not cheque that toobefore shares got dematerialized/worth of the company at thetime of purchase/sale of shares not proved? All suggest non-genuineness of the said transaction. (41) Whether the Hon’ble ITAT has erred in ignoring animportant aspect that in such cases of sham transactions ofshares showing abnormal hike in their value, where the factsthemselves speak loud and clear, the AO is justified to evendraw an inference from the attendant circumstances?” |A tew facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. During the course ofassessment proceedings under Section 153A read with Section 143 (3) of theAct, it was noticed by the Assessing Officer that the assessee had shownlong term capital gain on sale of shares of a company M/s GeeFCee FinanceLimited during the year under assessment. The assessee submitted that hehad purchased one lakh shares of GeeFCee Finance Limited through abroker of Karol Bagh, New Delhi at a price of=11/- per share. The amountoT 411 lakhs was claimed to have been paid out of cash in hand availablewith the assessee for the purchase of these shares. It was claimed that theshares transferred in name of assessee were subsequently sold during theyear relevant to the assessment year under assessment for,|2,89,94.516. Theassessee had shown long term capital gain ofe2,78,26,685/- on the sale ofthese shares. The assessee could not substantiate the genuineness of the saidShare transaction. He was not even able to prove the source of investment of411 lakhs in the purchase of these shares. The Assessing Officer vide order| dated 17.08.2012, Annexure A-I, treated the share transaction as non-genuine transaction and the amount of42,/8,26,685/- shown as long termcapital gain on share transaction, was added to the income of the assessee.Agegrieved, by the assessment order dated 17.08.2012, the assessee filedappeal before the Commissioner of Income Tax (Appeals), Ludhiana[CIT(A)] . Vide order dated 30.12.2013, Annexure A-II, the CIT(A) deletedthe addition of42,/8,260,685/- holding that department failed to prove thatthe sale of shares was sham transaction. The appeal was thus, partly allowed.Not satisfied with the order passed by the CIT(A), the revenue filed appealbefore the Tribunal. Vide order dated 20.07.2016, Annexure A-III, theTribunal upheld the order passed by the CIT(A) and dismissed the appeal ofthe revenue. Hence, the instant appeal by the appellant-revenue. | onWe have heard the learned counsel for the appellant. onWe have heard the learned counsel for the appellant. 4 The CIT(A) examined the matter and the comments of theAssessing Officer in the remand report. It has been recorded by the CIT(A)that the purchase of shares in the financial year 2006-07 for an amount of211 lakhs had been physically transferred in favour of the assessee in thebooks of the company namely GeeFCee Finance Limited. Further, the saidshares were dematerialized and credited in the assessee’s account maintainedwith depositary participant i.e. HDFC on 16.10.2006. The dividend amountoft=1,50,000/- had been received with regard to aforementioned holding ofShares on 23.10.2007. The said amount had been disclosed by the assessee inhis return of income and exemption was claimed accordingly. Thus, theaddition being without any logical basis was directed to be deleted. Therelevant findings recorded by the CIT(A) in this regard read thus:- “T have considered the facts of the case, the basis of additionmade by the Assessing Officer, the arguments of the AR during the assessment as well as appellate proceedings and thecomments of the Assessing Officer in the remand report. It isseen that the impugned purchase of shares allegedly effected inthe financial year 2006-07 for an amount ofy11 lakhs and thesaid shares had been physically transferred in favour of theappeallant in the books of the listed company namely GeeFCeeFinance Limited. Further the said shares got dematerialized andwere, credited in the assessee’s account maintained withdepository participant i.e. HDFC on 16.10.2006. Further,dividend amounting to41,50,000/- has been declared andreceived with respect to aforementioned holding of shares on23.10.2007 and the said dividend had been disclosed by theassessee in the return of income and claimed exemptaccordingly. It is also to be noted that the said dividend hadbeen accepted as exempt by the Assessing Officer for the yearunder consideration. The only logical conclusion that can bemade from the sequential perusal of the above detailed facts is.that the impugned shares were actually purchased by theassessee on given dates as these stand reflected in DDMATaccount maintained with HDEC bank. The dividend declared onthe same has been received and credited in assessee’s bank|account which is further found recorded in the [Income TaxReturn and allowed as exempt by the Assessing Officer. Asagainst this clear documentary evidence in favour of theappellant, the Assessing Officer has merely rejected thecontention of purchase on the basis of suspicion arising out ofreckless/casual replies given to various questions raised by theAssessing Officer in the assessment proceedings. It is importantto appreciate here that the assessee had been subjected to searchand seizure proceedings under Section 132 of the Income TaxAct, 1961 and the search proceedings did not lead to recoveryof any incriminating evidence to show that the transaction ofpurchase of share was arranged as suspected by the AssessingOfficer. It is also seen that no post search enquiries on the issuehad been conducted in the form of recording the statement ofbroker so as to bring on record any evidence of the said transaction being an accommodation entry. This is to mean thatjust because assessee has been found to be earning hugeamounts of long term capital gain on sale of shares, the samehas been held to be sham transaction merely on the ground ofsame being unlikely in the given circumstances. The AssessingOfficer, in the remand report has not been able to contradict anyof the facts regarding purchase of shares highlighted above orregarding the sale of shares and has not progressed beyond theStage of suspicion. It is further seen that the shares had beensold tor an amount of.=2,91,32,850/- and has been debited toassessee’s D’MAT account maintained with D/P, HDEC. It isalso seen that ST'T has been paid on the sale of shares and saidShares had been sold through National Stock Exchange. It isalso seen that the Assessing Officer while working out theaddition has allowed indexation on the cost of purchase ofShares till the date of sale and has in fact worked out the capitalgain only to make the impugned addition. I am of the view thatthere is no evidence on record, gathering during the course ofsearch proceedings or during the course of post searchinvestigation or assessment proceedings to hold the view thatthe entire transaction of purchase/sale of shares effected over aperiod of two years was a sham transaction. The addition beingwithout any logical basis is directed to be deleted.” 5, 5,On appeal by the revenue, the Tribunal upheld the findingsrecorded by the CIT(A). It was categorically recorded by the Tribunal that asnoticed by the CIT(A), in the remand report the Assessing Officer was notable to contradict the tacts regarding purchase of shares and sale thereof.Further, it was recorded that the assessee had sold shares through MTLShares and Stock Broker limited which is a SEBI registered Stock Broker.The payment for sale of shares was received through banking channels. Allthe documentary evidence being in favour of assessee, the deletion of the addition made by the CIT(A) was upheld by the Tribunal. The relevant findings recorded by the Tribunal read thus:- “We have heard the rival parties and have gone through thematerial placed on record. We find that the assessee hadpurchased shares in the month of April/May, 2006 as noted bythe learned CIT(A) in his order at page-4. The shares werepurchased in Assessment year 2006-07. Further the shaes weregot dematerialized and the same were created in the account ofassessee maintained with HDEC bank. The assessee alsoreceived dividend on such shares on 23.10.2007 and suchdividend was claimed as exempt and Assessing Officer did notraise any objection against the claim of such dividend. Thelearned CIT(A) has noted in his order that in the remand reportAssessing Officer was not able to contradict any of the factsregarding purchase of shares and regarding sale of shares. It isfurther observed that assessee had paid STT on the sale of suchShares and this fact has been noted by learned CIT(A) in hisorder. Further, we find that while making out the addition onaccount of capital gain the Assessing Officer himself gavecredit to assessee for indexed cost of acquisition to the extent of411,67,821/- taking the purchase price at)=11,00,000/-.Further, we find that assessee had sold shares through MTL.Shaes and Stock Brokers Limited as is noted by AssessingOfficer in reply to question No.24 which is a SEBI registeredStock Broker. Furthermore the payment for sale of shares wasreceived through Banking channels. All these documentaryevidences in favour of the assessee were rejected by AssessingOffiver merely on the basis of some casual replies given byassessee to the Assessing Officer. However, the fact remainsthat all the documentary evidences are in favour of assessee andlearned CIT(A) has passed a very reasoned and speaking orderand we do not find any infirmity in the same.” 6 The findings recorded by the CIT (A) and the Tribunal are purefindings of fact which have not been shown to be illegal, erroneous or 6 The findings recorded by the CIT (A) and the Tribunal are purefindings of fact which have not been shown to be illegal, erroneous or perverse by the learned counsel for the appellant. He has also not been ableto produce any material on record to controvert the said findings. Thus, noSubstantial question of law arises. Consequently, finding no merit in theappeal, the same is hereby dismissed. (Ajay Kumar Mittal)Judge February 16, 2017 Whether speaking/reasonedWhether reportable (Ramendra Jain)Judge Yes/No)Yes