Principal Commissioner Of Income Tax-1, Bhubaneswar v. Radheshyam Singhania

ORISSA HIGH COURT: CUTTACK ITA NO. 84 OF 2022ANDITA NO. 85 OF 2022 In the matter of appeals under Section 260A of the Income Tax Act, 1961 and the Rules framed thereunder. --------------- AFR ITA No. 84 of 2022 Principal Commissioner of Income Tax-1, Bhubaneswar ..… Appellant -Versus- Smt. Bimala Devi Singhania ….. Respondent For Appellant : Mr. T.K. Satapathy, Sr. Standing Counsel, Income Tax Department For Respondent : Mr. Bijay Panda and Ms. U. Bal, Advocates ITA No. 85 of 2022 Principal Commissioner of Income Tax-1, Bhubaneswar ..… Appellant -Versus- Radheshyam Singhania ….. Respondent For Appellant : Mr. T.K. Satapathy, Sr. Standing Counsel, Income Tax Department For Respondent : Mr. Bijay Panda and Ms. U. Bal, Advocates P R E S E N T: THE HONOURABLE ACTING CHIEF JUSTICE DR. B.R.SARANGI AND THE HON’BLE MR. JUSTICE MURAHARI SRI RAMAN Date of hearing and judgment: 10.10.2023 DR. B.R. SARANGI, J. Both the Income Tax Appeals (ITAs) are at the instance of the Department of Revenue. In ITA No.84 of 2022, challenge has been made to the order dated 06.07.2022 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in ITA No.212/CTK/2019 for the Assessment Year 2013-14 with a prayer to decide the substantial questions no.(A) and (B), as formulated in para-9 of the memo of appeal. Similarly, in ITA No.85 of 2022 challenge has been made to the order dated 06.07.2022 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in ITA No.213/CTK/2019 for the Assessment Year 2013-14 with a prayer to answer the substantial questions no.(A) and (B), as formulated in para-9 of the memo of appeal. 2. Since both the appeals involve identical issue, they are taken up together for hearing and disposed of by this common judgment. 3. For the sake of convenience and better appreciation, the factual matrix, as delineated in ITA No.84 of 2022, has been succinctly referred to. 3.1. Respondent, being an assessee, filed her return of income by e-mode for the assessment year 2013-14 on 24.03.2015 showing total income of Rs.6,14,950/- in the status of individual. She disclosed to have derived income from partnership firm, house property and income from other sources. She claimed exemption under Section 10 (38) on Long Term Capital Gain (LTCG), arising out of sale shares of CCL International Limited amounting to Rs.1,56,09,716/-. Consequentially, the case was selected for scrutiny through CASS (Computer-Assisted Scrutiny Selection) and, thereafter, notice under Section 143 (2) of the Income Tax Act, 1961 was issued to the respondent-assessee on 18.09.2015 fixing compliance by 28.09.2015. But, no compliance was made by the respondent-assessee by that date. 3.2. Later, the case was again fixed to 19.10.2015 for hearing by issuing notice under Section 142 (1) of the I.T. Act, 1961 along with a questionnaire letter on 09.10.2015. In response to the same, the respondent-assessee appeared through her advocate and furnished copy of the contract note (sale of shares), copy of partnership deed with Nilachal Textwaste Industries, along with written submission, wherein it was stated that she derived income from partnership firm, house property and income from other sources. A survey under Section 133A of the I.T. Act, 1961 was conducted by the investigation wing of Income Tax Department in the case of Nilachal Cotton Industries and Group at Balubazar, Manik Ghosh Bazar, Cuttack on 20.08.2015. During the 3.2. Later, the case was again fixed to 19.10.2015 for hearing by issuing notice under Section 142 (1) of the I.T. Act, 1961 along with a questionnaire letter on 09.10.2015. In response to the same, the respondent-assessee appeared through her advocate and furnished copy of the contract note (sale of shares), copy of partnership deed with Nilachal Textwaste Industries, along with written submission, wherein it was stated that she derived income from partnership firm, house property and income from other sources. A survey under Section 133A of the I.T. Act, 1961 was conducted by the investigation wing of Income Tax Department in the case of Nilachal Cotton Industries and Group at Balubazar, Manik Ghosh Bazar, Cuttack on 20.08.2015. During the course of survey, a statement on oath was recorded from Sri Radheshyam Singhania, husband of the respondent-assessee to the questions no.13 and 16, which refers- “kindly furnish the details of Capital Gains in any received by you on sale of share during the financial year 2012-13 or any other preceding financial years” and “the department is in possession of a specific information pertaining to the receipt of bogus long term capital gains to the tune of Rs.3,43,89,225/- received by the husband and assessee on the sale and purchase of scrip of CCL . Inter effected during the financial year 2012-13 by way of taking accommodation entries from various entry operators who have helped in disguising unaccounted income as LTCD. Kindly, explain respectively.” To that, the husband of the respondent-assessee, Radhesyam Singhania, replied and taking into consideration such reply the respondent-assessee was asked about such statement and to furnish the revised computation sheet of her income, after taking into account the above disclosed amount of Long Terms Capital Gain for the assessment year 2013-14. She was also requested to furnish the copies of challan payments of tax on the above mentioned Long Term Capital Gain. 3.3. On the basis of such averments and materials available on record, the Assessing Officer included Rs.1,61,09,716/- in the computation of the taxable income of the respondent-assessee, as income from other source, and accordingly a penalty proceeding under Section 27 (1) (c) of the Income Tax Act, 1961 was initiated. Consequentially, final order was passed and assessment was made under Section 143 (3) of the Income Tax Act, 1961 on a total income of Rs.1,67,24,670/- and penal notice was issued to the respondent-assessee. The respondent-assessee preferred first appeal before the First Appellate Authority by filing I.T. Appeal No.0018/2016-17 and finally the First Appellate Authority, on 28.03.2019, came to a definite finding that the Assessing Officer was not justified in rejecting the claim of exemption under Section 10 (38) in respect of LTCG arising on the sale of shares of M/s CCL International Ltd. The consideration received by the respondent-assessee was out of the sale of shares effected on a recognized Stock Exchange. The shares had been held for a period of more than twelve months and Securities Transaction Tax (STT) had been paid at the time of transfer. Hence, the amount received by the respondent-assessee, is undeniably in the nature of Long Terms Capital Gain (LTCG). The Assessing Officer’s action was based entirely on surmise and suspicions and at the same time the Assessing Officer was unable to rebut the concrete evidence tendered by the respondent-assessee in support of her claim. Thereby, addition of Rs.1,61,09,716/- made by the Assessing Officer is hereby deleted and the respondent-assessee’s appeal was allowed. 3.4. Against the order passed by the First Appellate Authority, the Department preferred 2[nd] appeal bearing ITA No.212/CTK/2019 for the assessment year 2013-14, in which the 2[nd]Appellate Authority took into 3.4. Against the order passed by the First Appellate Authority, the Department preferred 2[nd] appeal bearing ITA No.212/CTK/2019 for the assessment year 2013-14, in which the 2[nd]Appellate Authority took into consideration that other than the statement recorded from Sri Radheshyam Singhania, the Assessing Officer has not relied upon any other evidence, however, the respondent-assessee had produced substantial evidence in the form of the first allotment of the shares in AAR Infrastructure Ltd., the merger of AAR Infrastructure with CCL International Ltd., the sale of shares through ISE Security and Services Ltd., a SEBI authorized broker, the proof of payment of STT as also the fact that these shares were in the Demat form. Other than the statement of the respondent-assessee showing that she is willing to pay tax on the transaction, there is no shred of evidence available with the Assessing Officer to presume that the transaction done by the respondent-assessee in the purchase of AAR Infrastructure shares, merger of AAR Infrastructure with CCL International Ltd. shares was a colourable device or an attempt at evading tax by using the unscrupulous methods of tax planning bordering on side of tax evasion. Further, the revenue has not relied upon the report of the investigation authorities from the brokers for the purpose of making the assessment. The reliance on the statement of the broker Sri Sanjay Bohra and the investigation report has been made only in the annexures to the ground of appeal filed before the Tribunal. These are clearly evidences produced by the revenue to support its stand in respect of probability and possibility of respondent-assessee having indulged in colourable device of tax evasion, fringing of the area of tax evasion. The respondent-assessee having retracted her statement in principle and, in fact, in holding on to her claim of exemption under Section 10 (38) of the Act, as it was supported by proper and adequate evidence, cannot be found fault with. As such, similar issues have been raised by the revenue in its appeal, i.e., ITA No.213/CTK/2019 in the case of Radheshyam Singhania, except difference in figures. By holding as above, the tribunal dismissed both the appeals filed by revenue, vide order dated 06.07.2022, upholding the order of the CIT (A). 3.5. Against the aforesaid order, the present appeal has been filed under Section 260A of the Income Tax Act, 1961 read with Rules framed thereunder taking a specific plea that the respondent-assessee in her return of income tax for the assessment year 2013-14 derived income as a partner from partnership firm of M/s Nilachal Textwaste Industries, income from business, salary and other sources, capital gains and dividend. As such, a survey under Section 113A of the Income Tax Act, 1961 was conducted on 20.08.2015 by the Investigation Wing of the IT Department on the partnership firm of the respondent-assessee M/s Nilachal Textwaste Industries and Group. At the time of survey, it was found that the assessee had booked a bogus capital gain of Rs.1,56,09,716/- out of the sale of shares of M/s CCL International Ltd. and the transaction was merely an accommodation entry taken by the respondent-assessee to disguise her unaccounted income in the garb of Long Term Capital Gain. During the course of survey under Section 133A of the Income Tax Act, 1961, statement under oath of Sri Radheshyam Singhania, husband of the respondent-assessee was recorded, wherein he stated that Rs.1,56,09,716/- in the name of Smt. Bimala Devi as long term capital gains arising out of the sale of shares of M/s CCL International Pvt. Ltd. during the assessment year 2013-14. He also claimed that an exemption under Section 10 (38) of the Income Tax Act, 1961 against the LTCG would be withdrawn and taxes on this amount would be paid by reclassifying the LTCG as income from other sources. But, during assessment proceeding, the respondent-assessee submitted that the statement recorded during the survey operation under Section 133A was given under duress and the claim of exemption under Section 10 (38) of the Income Tax Act, 1961 of LTCG was valid. Therefore, the Assessing Officer, considering the facts of the case, took an opinion that the sale of shares and consequent capital gain was a colourable device used by the respondent-assessee to disguise her unaccounted income and, therefore, Rs.1,61,09,716/- treated as income from other sources and added to the income of the respondent- assessee. But, the same was turned down by the CIT (A), Cuttack Bench, Cuttack, the 1[st] Appellate Authority and confirmed by the Income Tax Appellate Tribunal, vide order dated 06.07.2022, by dismissing the appeal preferred by the Department. 4. Mr. T.K. Satapathy, learned Senior Standing Counsel appearing for the Income Tax Department vehemently contended that the respondent-assessee is one of the beneficiary of the modus operandi to create bogus profit in the garb of tax exemption under Long Term Capital Gain by well-organized network of entry providers with the sole motive to provide such accommodation entries to enable the beneficiary to convert her undisclosed income to tax free income. Therefore, the CIT (A) and Income Tax Appellate Tribunal are not justified by nullifying the order passed by the Assessing Officer and accepting the claim of the respondent-assessee regarding exemption under Section 10 (38) of the Income Tax Act with regard to the income under the heading Long Terms Capital Gain on sale of shares of penny stocks by ignoring the admission by their group before the income tax authority. It is further contended that in view of the CBDT Circular No.23 of 2019 dated 06.09.2019, as the matter related to bogus Long Term Capital Gain of penny stock, the finding arrived at by the CIT (A) and Income Tax Appellate Tribunal, cannot be sustained in the eye of law 5. Mr. Bijay Panda, learned counsel appearing for the respondent-assessee vehemently contended that the main dispute is with regard disallowance of Long Term Capital Gain (LTCG) claimed under Section 10 (38) of the Income Tax Act, 1961 in passing the order of assessment under Section 143 (3) of the Income Tax Act, 1961 by the Assessing Officer on 23.03.2016 and treating the same as income from other source under Section 56 of the Income Tax Act, 1961 on the basis of a statement recorded during survey made under Section 133A of the Income Tax Act, 1961 without any adverse materials/evidence against the 5. Mr. Bijay Panda, learned counsel appearing for the respondent-assessee vehemently contended that the main dispute is with regard disallowance of Long Term Capital Gain (LTCG) claimed under Section 10 (38) of the Income Tax Act, 1961 in passing the order of assessment under Section 143 (3) of the Income Tax Act, 1961 by the Assessing Officer on 23.03.2016 and treating the same as income from other source under Section 56 of the Income Tax Act, 1961 on the basis of a statement recorded during survey made under Section 133A of the Income Tax Act, 1961 without any adverse materials/evidence against the respondent-assessee. But, the learned CIT (A), after verification of the documents and confrontation of the matter, allowed the claim under Section 10 (38) of the Income Tax Act, 1961. It is further contended that the revenue authority went on Second Appeal before the Income Tax Appellate Tribunal and in turn the Tribunal, being the last fact finding authority, after verification of the documents/evidence filed in paper book, affirmed the order of the 1[st] Appellate Authority and dismissed the appeal preferred by the Department in absence of any incriminating evidence against the respondent-assessee. It is further contended that it is the bounden duty of the Assessing Officer to prove that the evidence furnished by the respondent-assessee to support the purchase and sale of shares as bogus and, as such, it is well settled that the suspicion however strong could not partake the character of legal evidence, hence the greater onus is casted on the Revenue to corroborate the addition by controverting the documentary evidence furnished by the respondent-assessee. Therefore, denial of exemption for long term capital gain under Section 10 (38) of the Income Tax Act, 1961, on the basis of a statement recorded during survey, by ignoring the salient evidence, is unjust, illegal and bad in law. To fortify his contention, learned counsel appearing for the respondent-assessee relied upon the judgments in the cases of Bhoruka Engineering Industries Ltd. v. Deputy Commissioner of Income Tax, 356 ITR 25 (Kar.); Vijay Kumar Talwar v. Commissioner of Income Tax, 330 ITR 1 (SC); Commissioner of Income Tax v. Khader Khan Son, 352 ITR 480 (SC); Commissioner of Income Tax v. P. Balasubramanian, 354 ITR 116 (Mad.); and Principal Commissioner of Income Tax v. HBS Infonet (P) Ltd., 394 ITR 538 (Del.). 6. On the basis of the pleadings available on record and also the arguments advanced by learned counsel appearing for the respective parties, this Court, “I) Whether the learned Tribunal has rightly accepted the claim of the assessee as per law regarding exemption under Section 10 (38) with respect to alleged income under the head “Long Term Capital Gain” on sale of shares of penny stock by ignoring the admission by their group before the Income Tax Authority that complete tax would be paid on the bogus LTCG claimed by the group subsequent to survey operation under Section 133A? II) Whether the learned Tribunal has rightly dismissed the appeal of the revenue with the observation that as the sale of shares were effected through recognized stock exchange and STT had been paid at the time of transfer, therefore it cannot be held as bogus?” 7. Before delving into the issues in question, the provisions contained under Section 10 (38) of the Income Tax Act, 1961 are extracted hereunder:- “Any income arising from the transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented fund [or a unit of a business trust] where- (a)the transaction of sale of such equity share or unit is entered into on or after the date on which equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b)such transaction is chargeable to securities transaction tax under that Chapter; securities transaction tax under that Chapter; 7. Before delving into the issues in question, the provisions contained under Section 10 (38) of the Income Tax Act, 1961 are extracted hereunder:- “Any income arising from the transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented fund [or a unit of a business trust] where- (a)the transaction of sale of such equity share or unit is entered into on or after the date on which equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b)such transaction is chargeable to securities transaction tax under that Chapter; securities transaction tax under that Chapter; [Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profit and income tax payable under section 115 JB;] [Provided also that nothing contained in sub-clause(b) shall apply to a transaction undertaken on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency;] [Provided also that nothing contained in this clause shall apply to any income arising from the transfer of a long term capital asset, being an equity share in a company, if the transaction of acquisition, other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after the 1[st] day of October, 2004 and such transaction is not chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 (23 of 2004]” 8. On bare perusal of the aforementioned provisions, it is made clear that for claiming the benefit of exemption under Section 10(38) of the Income Tax Act, 1961 three requirements need to be fulfilled. Firstly, the share should be held for more than one year, secondly, it should be listed and sold on recognized stock exchange and, thirdly, on the said sale necessary Security Transaction Tax (STT) has to be chargeable. If all these requirements are satisfied, then the benefit of exemption under Section 10 (38) of the Income Tax Act, 1961 is admissible. 9. In Bhoruka Engineering Industries Ltd. (supra), the Karnataka High Court has also laid down the above mentioned principles. Therefore, applying the provisions contained under Section 10 (38) of the Income Tax Act, 1961 and also the law laid down by the High Court of Karnataka mentioned supra, all the above noted three elements are existing in the present case and, thereby, the respondent-assessee is entitled to get the benefit under Section 10 (38) of the Income Tax Act, 1961. As such, a survey under Section 133A of the Income Tax Act, 1961 was conducted on 20.08.2015 and, without detecting any incriminating documents or evidence against the respondent-assessee, recorded the statement that tax will be paid on the claim made under Section 10 (38) of the Income Tax Act, 1961 in filing the IT return for the Assessment Year 2013-14 and to be disclosed as income from other source. But the said statement, being without any incriminating evidence against the respondent-assessee, cannot be ipso facto decided against the respondent-assessee. The present income tax appeal filed at the instance of the revenue involved no substantial question of law, as both the appellate authorities have decided on the basis of evidence and documents produced by the respondent-assessee and the revenue and, as such, on the basis of the facts, both the authorities have come to a conclusion that the respondent-assessee is entitled to the benefit under Section 10 (38) of the Income Tax Act, 1961 and held that the appellant-revenue had failed to bring any evidence in rebuttal nor was it proved that the documents produced were false, fabricated or fictitious, hence, the findings, as recorded by the appellate authorities, that the transaction of purchase and sale of shares could not be treated as non-genuine, were essentially in the realm of appreciation of evidence and, as such, no substantial question of law is involved. 10. In Vijaya Kumar Talwar (supra), it has been held that in absence of demonstrated perversity in the finding of the Tribunal, interference cannot be warranted, when on thorough consideration of the material on record it was found that the transaction of purchase and sale of shares could not be treated as non-genuine. 11. In Khader Khan Son (supra), the apex Court held that statement recorded during survey under Section 133A of the Income Tax Act, 1961 has no evidentiary value, as it does not empower any Income Tax Officer to examine on oath, as the assessment has to be made on the basis of materials and documentary evidence and not on a bare statement. Therefore, the substantial questions of law, as formulated, have no legs to stand. 12. It is worthwhile to mention here that, the Security Transaction Tax (STT) under Chapter-VII of Finance (No.2) Act, 2004 is a direct tax levied by Government of India on every purchase and sale of securities that are listed on the recognized stock exchanges in India. The STT was implemented to curb the tax avoidance on capital gains, which is similar to Tax Collected at Source (TCS) to be collected by a recognized stock exchange and both the buyer and seller will pay the said tax, as prescribed rate for carrying out the transaction of securities for financial gains, are liable to pay STT. All gains from such transactions are called capital gains and are classified as LTCG or STCG, depending on the holding period. Therefore, the alleged substantial questions of law as proposed by the Revenue cannot be sustained in the eye of law, as the same is contrary to clauses (a) and (b) of Section 10 (38) of the Income Tax Act, 1961 (Circular No.5/2005 dated 15.07.2005). 13. Mr. T.K. Satapathy, learned Senior Standing Counsel appearing for the Income Tax Department laid emphasis on the CBDT Circular No.23 of 2019 dated 06.09.2019, as the matter related to bogus Long Term Capital Gain on Penny stock. But the said circular can only be applied prospectively not retrospectively, because the present appeal is for the Assessment Year 2013-14. Thereby, the circular relied upon by the Senior Counsel appearing for the revenue has no application to the present case. 14. In view of the facts and circumstances, as well as the law, as discussed above, even though substantial questions of law have been framed vide order dated 13.09.2023, the same are not required to be answered. As such, CIT (A) and Income Tax Appellate Tribunal, being the fact finding courts, relying upon the evidences available on record, having passed the orders impugned, there is no necessity of answering the substantial questions of law framed for adjudication. 15. Thus, both the appeals, being devoid of merits, are hereby dismissed. However, there shall be no order as to costs. …………….…………..….DR. B.R. SARANGI, ACTING CHIEF JUSTICE M.S. RAMAN, J. I agree. …………….…………..….M.S. RAMAN, JUDGE Orissa High Court, Cuttack The 10[th] October, 2023, Ashok Signature Not Verified Digitally SignedSigned by: ASHOK KUMAR JAGADEB MOHAPATRADesignation: Personal AssistantReason: AuthenticationLocation: HIGH COURT OF ORISSADate: 18-Oct-2023 16:05:21