Exempted Income Under Section 10(38) Of The Income Tax Act, 1961Ignoring That The Script Has Been Established To Be A Penny Stock By Thedepartment And Which Was v. Swati Bajaj And Ors. Reported In 2022 Scc Online Cal1572

IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/42/2023IA NO: GA/2/2023 THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) -2, KOLKATAVS.SMT. USHA DEVI MODI BEFORE : THE HON’BLE JUSTICE T.S. SIVAGNANAM AndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 30[th] March, 2023 Appearance :Mr. Soumen Bhattacharjee, Adv.…for appellant.Mr. S.M. Surana, Sr. Adv.…for respondent. The Court : - This appeal by the revenue filed under Section 260A of the IncomeTax Act, 1961 [the Act, for brevity] is directed against the order dated 12[th] January,2021 passed by the Income Tax Appellate Tribunal, “A” Bench, Kolkata in ITANo.874/Kol/2019 for the assessment year 2014-15. The revenue has raised the following substantial questions of law forconsideration : A.Whether the Learned Tribunal has committed substantial error in law bysetting aside the order passed under section 263 of the Income Tax Act,1961 by the Pr. Commissioner of Income Tax without appreciating that theassessment order passed by the Assessing Officer was erroneous andprejudicial to the interest of revenue ?setting aside the order passed under section 263 of the Income Tax Act,1961 by the Pr. Commissioner of Income Tax without appreciating that theassessment order passed by the Assessing Officer was erroneous andprejudicial to the interest of revenue ? B.Whether the Learned Tribunal has committed substantial error in lawexemption cannot be allowed under section 10(38) of the Income Tax Act,1961 wherein entire transaction is colluded and bogus ?exemption cannot be allowed under section 10(38) of the Income Tax Act,1961 wherein entire transaction is colluded and bogus ? C.Whether the Learned Tribunal has committed substantial error in law byholding Long Term Capital Gain amounting to Rs.20,49,788/- as exempted income under section 10(38) of the Income Tax Act, 1961ignoring that the script has been established to be a penny stock by theDepartment and which was widely published throughout the country ?We have heard learned counsel on either side. The learned Tribunal in the impugned order has followed its decision in the caseof M/s. Gitsh Tikmani (HUF) and Others and other connected matters. The revenuehad preferred appeals before this Court against the said decision and other connectedmatters and the appeal was allowed by this Court in the case of Principal Commissionerof Income Tax-5, Kolkata vs. Swati Bajaj and Ors. reported in 2022 SCC Online Cal1572. Learned senior advocate appearing for the respondent submitted that in theinstant case, the point is as to whether there was no enquiry conducted by theAssessing Officer warranting exercise of jurisdiction by the Principal Commissioner ofIncome Tax under Section 263 of the Act. This issue was considered in the above-referred decision at paragraph 100 and the relevant paragraph is quoted hereinbelow : Learned senior advocate appearing for the respondent submitted that in theinstant case, the point is as to whether there was no enquiry conducted by theAssessing Officer warranting exercise of jurisdiction by the Principal Commissioner ofIncome Tax under Section 263 of the Act. This issue was considered in the above-referred decision at paragraph 100 and the relevant paragraph is quoted hereinbelow : “100. While proposing to invoke the power under Section 263 of the Act, thequestion as to whether the Commissioner was justified in invoking the powerunder Section 263 has to be decided based on facts of each case. The assesseecannot be allowed to contend that the language employed in the orders passed bythe Commissioner under Section 263 does not mention about how theassessments order was erroneous in so far as it is prejudicial to the interest ofrevenue. These words or phrases are contained in Section 263 of the Act. Merelybecause the Commissioner has not used these words or phrases occurring inSection 263 will not vitiate the assumption of jurisdiction. What is required to beseen is the content of the order and the discussion and findings rendered by theCommissioner. This is because the cardinal principle is that substance over formhas to be preferred. The Commissioner while issuing the show cause notice hadcome to the prima facie conclusion that the assessing officer did not conduct anenquiry as required to justify such prima facie opinion. The Commissioner wasrequired to set out as to why in his opinion the enquiry by the assessing officerwas not proper or insufficient. On reading of the orders passed by theCommissioner under Section 263 which are the subject matter in ITAT No. 156 of2021 and other similar matters, it is seen that the Commissioner has disclosed tothe assessee as to why in his case the power under Section 263 has to be invoked.On reading of the orders passed by the Commissioner, we find that the order to bea reasoned order and there is nothing to conclude. The issue was pre-decided. Theassessments orders which are subject matter of Section 263 action shows that anenquiry has not been conducted by the assessing officer in the manner it ought tohave been conducted. We say so because, the officers of the income taxdepartment were fully aware of the investigation which was done and the reportbeen circulated and therefore at that stage that the officer had to take note of suchreport to put the assessee on notice and commenced an enquiry by calling upon the assessee to justify the genuineness of the claim of LTCG/STCL. The assessingofficer turned a blind eye to the project investigation which was carried out by thedepartment. The assessing officer lost sight of the fact that the enquiry did notcommence from that of the assessee and more particularly the name of theassessee did not feature in the investigation report. Therefore the assessing officerwas bound to cause an enquiry by calling upon the assessee to explain and justifythe genuineness of the claim for exemption made by them. If the assesses has notestablished the genuinity at the “other end” the assessing officer would have noother operation except making the addition under Section 68 of the Act. We findthat in these cases the assessing officers missed an important point as to what isthe nature of enquiry which he is required to do. The assessing officer merely wentby the submission that the stock broker is a public sector company. Unfortunatelythis is not the manner in which the enquiry should have been conducted. Theentire case before the department was the genuinity of the claim for LTCG/STCLand the basis was unhealthy and steep rise of the price of the shares of mostly thepaper companies though listed before the stock exchanges their shares were veryrarely traded and in the background of these facts the enquiry should have beenconducted by the assessing officer. Therefore we are of the clear view that theassumption of jurisdiction under Section 263 of the Act by the respectiveCommissioners was fully justified and are shown to be proper exercise of power.The tribunal while interfering with the orders of the Commissioner once againposed a wrong question to itself and failed to approach the matter in the properperspective considering the backgrounds in which the power was invoked. Thetribunal brushed aside the surrounding circumstances which have led to suchassessments or orders under Section 263. The manipulative practice adopted bythe stock brokers and entry operators was not even adverted to by the tribunaland the entire matter was dealt with in a very superficial manner without dwellingdeep into the core of the issue. The tribunal being the last fact finding authoritywas required to go deeper into the issue as the matter have manifested large scalescam. Thus, the orders of the tribunal are not only perfunctory but perverse aswell. The exercise that was required to be done by the tribunal is to consider thetotality of the circumstances because the transactions are shown to be verycomplex, the meeting of minds of the “players” can never be established by directevidence and therefore the surrounding circumstances was required to be takennote of by the tribunal which exercise has not been done. We have considered asto whether in such an event, should the matter be remanded to the tribunal forfresh consideration. We have held that there is no such requirement and that isthe Court is empowered to examine! the findings recorded by the assessing officer,or the CIT (A) to arrive at a conclusion. The assessees have been harping upon theopinion rendered by the financial experts, professionals in the said field theinformation which were available in the media etc. All these opinions are at bestsuggestions to an investor. The assessees cannot state that merely because anexpert had issued a buy call or there was news in the media that a particularshares shows an upwards trend and it is good time for buying those shares. Theyjumped into the fray the assessees are to be reminded of the doctrine of “caveatemptor”. The assesses cannot take shelter under the opinion given by the expertsas it is not the expert who has indulged in the transaction but it is the assessee.Therefore by following such experts advice if the assessee gets into an “web” it isfor him to extricate himself from the tangle and he cannot reach out to the expertto bail him out. The assessees cannot be heard to say that they had blindlyfollowed advice of a third party and made the investment . All these opinions are at bestsuggestions to an investor. The assessees cannot state that merely because anexpert had issued a buy call or there was news in the media that a particularshares shows an upwards trend and it is good time for buying those shares. Theyjumped into the fray the assessees are to be reminded of the doctrine of “caveatemptor”. The assesses cannot take shelter under the opinion given by the expertsas it is not the expert who has indulged in the transaction but it is the assessee.Therefore by following such experts advice if the assessee gets into an “web” it isfor him to extricate himself from the tangle and he cannot reach out to the expertto bail him out. The assessees cannot be heard to say that they had blindlyfollowed advice of a third party and made the investment. Selection of shares to bepurchased is a very complex issue, it requires personal knowledge and expertise asthe investment is not in a mutual fund. None of the assessees before us haveshown to have to made any risk analysis before making their investment in a“penny stock”. If according to them they have blindly taken a decision to invest ininsignificant companies they having done so at their own peril have to face theconsequences. Thus, the conduct of the assessees before*us probabilities the stand taken by the revenue, rightly the mind of the assessee as aninvestor wastaken note to deny the claim for exemption. It is in this background that thehuman probabilities would assume significance. As observed earlier the doctrine ofpreponderance of probabilities could very well be applied in cases like the presentone. We say human probabilities to be the relevant factor as on account of the factthat the assessees are of individuals or Hindu Undivided Families and the tradinghas been done in the name of the individual assessee or by the Karta of the HUF.None of the assessee before us have been shown to big time investor. This isevident from the income details of the assessee which has been culled out by therespective assessing officers. Assuming that the assessee is a regular investor aswas submitted to us by the learned advocates for the assessees that in anymanner cannot improve the situation as the claim for LTCG has been onlyrestricted to the shares which were purchased and sold by the assessees in pennystocks companies. Therefore merely because the assessee had invested in otherblue chit companies had earned profit or incurred loss cannot validate the taintedtransactions. It has been established by the department that the rise of the pricesof the shares was artificially done by the adopting manipulative practices.Consequently whatever resultant benefits which accrue from out of suchmanipulative practices are also to be treated as tainted. However, the assessee hadopportunity to prove that there was no manipulation at the other end andwhatever gains the assessee has reaped was not tainted. This has not been provedor established by any of the assessee before us. Therefore, the assessing officerswere well justified in coming to a conclusion that the so called explanation offeredby the assessee was not to their satisfaction. Thus, the assessee having not provedthe genuineness of the claim, the creditworthiness of the companies in which theyhad invested and the identity of the persons to whom the transactions were done,have to necessarily fail. In such factual scenario, the Assessing Officers as well asthe CIT(A) have adopted an inferential process which we find to be a process whichwould be followed by a reasonable and prudent person. The Assessing Officers andthe CIT (A) have culled out proximate facts in each of the cases, took intoconsideration the surrounding circumstances which came to light after theinvestigation, assessed the conduct of the assessee, took note of the proximity ofthe time between the buy and sale operations and also the sudden and steep riseof the price of the shares of the companies when the general market trend wasadmittedly recessive and thereafter arrived at a conclusion which in our opinion isa proper conclusion and in the absence of any satisfactory explanation by theassessee, the Assessing Officers were bound to make addition under Section 68 ofthe Act. “ In the light of the above, the order passed by the Tribunal calls for interference. Accordingly, the appeal is allowed and the substantial questions of law areanswered in favour of the revenue. Affidavit of service filed in Court today be kept with the record. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)