Madras High Court
The Commissioner Of Income vs Shri Vinod Kumar Kundammal on 24 August, 2021
TCA.No.429 of 2021
In the High Court of Judicature at Madras
Dated : 24.8.2021
Coram
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
Tax Case Appeal No.429 of 2021
The Commissioner of Income
Tax, Chennai ...Appellant
Vs
Shri Vinod Kumar Kundammal ...Respondent
APPEAL under Section 260A of the Income Tax Act, 1961 against
the order dated 22.7.2019 passed in ITA.No.603/Chny/2019 on the file
of the Income Tax Appellate Tribunal, Chennai 'C' SMC Bench for the
assessment year 2014-15.
For Appellant: Mrs.R.Hemalatha, SSC
Judgment was delivered by T.S.SIVAGNANAM,J
We have elaborately heard Mrs.R.Hemalatha, learned Senior
Standing Counsel appearing for the appellant – Revenue.
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2. This appeal filed by the Revenue under Section 260A of the
Income Tax Act, 1961 (for short, the Act) is directed against the order
dated 22.7.2019 passed in ITA.No.603/Chny/2019 on the file of the
Income Tax Appellate Tribunal, Chennai 'C' SMC Bench (for brevity, the
Tribunal) for the assessment year 2014-15.
3. An appeal was filed by the respondent – assessee before the
Tribunal challenging the order passed by the Commissioner of Income
Tax (Appeals)-5, Chennai [for brevity, the CIT(A)] dated 28.12.2018,
by which, the CIT(A) affirmed the order of assessment dated
18.12.2017 passed under Section 143(3) read with Section 147 of the
Act wherein the Assessing Officer had brought on record the role of the
assessee in promoting a company, the relation of the assessee with
that of the promoter and the role of inflating of prices, etc. The
Tribunal, by the impugned order, allowed the appeal and remanded the
matter by following its earlier decision in the case of Kanhaiyalal &
Sons (HUF) Vs. ITO [ITA. No.1849/Chny/2014 dated
06.12.2019].
4. The Revenue is on appeal before us challenging the
correctness of the order and raising the following substantial question
of law :
“Whether, on the facts and in the
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circumstances of the case, the Tribunal was
right in remitting the issue back to the file of
the Assessing Officer by quoting the decision in
the case of Kanhaiyal & Sons (HUF) in ITA.
No.1849/Chny/2014 Sunil Kumar Lalwani and
Aashesh Kumar Lalwani wherein the onus has
been shifted to the Revenue with a direction
that the Assessing Officer is to bring on record
the role of the assessee in promoting the
company and the relation of the assessee if
any with that of the promoters and role of
inflating of prices etc., which exercise had
already been done by the Assessing Officer
and the SEBI?”
5. An identical issue was considered by this Court in several
other matters where the Tribunal followed the said decision and the
Court allowed the appeal filed by the Revenue, which judgment had
become final. One such decision is in the case of CIT Vs. Manish
D.Jain (HUF) [reported in (2020) 122 Taxmann.com 180], to
which, one of us (TSSJ) was a party. The above substantial
question of law raised in this appeal is identical to that of the question
raised in the said case. The Court, after taking note of the factual
position, which is more or less identical to that of the case of the
respondent – assessee, considered the issue as to whether the
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Tribunal was justified in remanding the matter to the Assessing Officer
by placing reliance upon its decision in the the case of Kanhaiyalal &
Sons (HUF). The argument of the Revenue was that the order of the
Tribunal was perverse. After testing the correctness of the said
argument, the Court held in favour of the Revenue.
6. The relevant portions in the decision of this Court in the case
of Manish D.Jain (HUF) are as follows :
“12. The first and foremost aspect to be
considered is as to whether the Tribunal was
justified in remanding the matter to the
Assessing Officer for a fresh consideration of
the claim made by the assessee under Section
10(38) of the Act.
13. There is no dispute with regard to
the power of the Tribunal to remand while
exercising its jurisdiction under Section 254 of
the Act. The Hon'ble Supreme Court, in the
case of Hukumchand Mills Ltd. Vs. CIT
[reported in (1967) 63 ITR 232] held that
the Tribunal had power to remand the matter
back to the Income Tax Officer. This decision
was followed by the Hon'ble Supreme Court in
the case of Martin Burn Ltd. Vs. CIT
[reported in (1993) 68 Taxmann 346].
14. The question is as to when the power
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of remand can be exercised. For this
proposition, it would be beneficial to refer to
the decision of this Court in the case of
Cholamandalam MS General Insurance Co.
Vs. Royal Sundaram Alliance General
Insurance Co. Ltd. [reported in (2013)
357 ITR 597] wherein the Division Bench
held as follows :
“17. In the background of the jurisdiction
of the Tribunal as a fact finding authority, we
feel that the Tribunal should have acted with
greater circumspection to order a remand
particularly when the Revenue itself does not
dispute that the materials were all those that
were considered by the Assessing Officer.
Remand is not a power to be exercised in a
routine manner and should be used sparingly
as an exception only when the facts warranted
such course of action. We feel that the Tribunal
should have arrived at its own conclusion on
facts after due consideration of the materials
before it which were no different from which
was placed before the authorities below.
Hence, we have no hesitation in setting aside
the order passed by the Tribunal in remanding
the matter back to the Income Tax Appellate
Tribunal on the admitted fact that no fresh
materials were placed before the Tribunal
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necessitating remand.”
15. Thus, we are required to consider
the issue as to whether the Tribunal was
justified in remanding the matter to the
Assessing Officer to reconsider the issue
regarding the claim made by the assessee
under Section 10(38) of the Act. On a reading
of the order passed by the Tribunal, we find
that the Tribunal did not interfere with the
factual findings recorded by the Assessing
Officer and the CIT(A) with regard to the
transaction done by the assessee. Thus, unless
and until the Tribunal found an error in the
approach of the Assessing Officer or the CIT(A)
and only after interfering with such a finding,
the Tribunal could have exercised its power of
remand. Even in such circumstances, the
Tribunal was required to record reasons as to
why the matter should be remanded and as to
why the Tribunal could not decide the factual
issue on the available material.
16. We find from the order passed by the
CIT(A) that the assessee raised a vague
contention that a thirty party statement was
relied upon by the Assessing Officer without
affording an opportunity to the assessee to
confront the same and the decision was taken
against the assessee. Unfortunately, the
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Tribunal did not examine as to whether such a
contention raised before the CIT(A) was rightly
decided or not. Further, from the grounds
raised by the assessee before the CIT(A), we
find that they had not disputed the factual
position, which had been brought out by the
Assessing Officer in his order. Before the
Tribunal also, we find that the assessee did not
dispute the factual finding recorded by the
CIT(A) in his order dated 07.8.2018. Thus, we
have no hesitation to hold that the order of
remand passed by the Tribunal was wholly
unjustified, devoid of reasons and
unsustainable in law.
17. Moving to the findings rendered by
the Assessing Officer and the CIT(A) with
regard to the nature of transaction done by the
assessee, we find that there was absolutely no
justification on the part of the Tribunal to
interfere with the facts recorded by both the
Lower Authorities. The gist of the modus
operandi done by the assessee as could be
culled from the order of assessment as well as
the order of the CIT(A) is as follows :
“The assessee had purchased 450 shares
of Dhanalabh Mercantile Limited which later
merged with M/s.Bakra Prathisthan Ltd and the
said 450 shares originally held by the assessee
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were converted into 4500 shares. All the
purchases were made through off market ie.
after closing of share markets and the
assessee had never heard of the name of the
scrip before. The amount of investments was
very meager in some cases and huge profits
were made by the assessee on the sale of
unknown company shares. The name of the
person and his details were not known to the
assessee and the assessee was not able to
produce the person before the Assessing
Officer from whom the said shares were said to
have been purchased. The letters sent to the
address of the seller were all returned
unserved and details of the Company were
also not known to the assessee. The share
certificate issued to the seller from whom the
assessee had purchased and the certificates
issued to the seller would be a month or so
before the alleged sales to the assessee. The
evidence was typed date of transfer on the
back side of the share certificates and the bill
for purchasing this scrip was shown as a proof
and the date of bill would be the prior to the
date of share certificate itself allotting the
shares to the seller. In many cases, implying
that the shares were sold to the assessee,
even before the receipt of share certificate by
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the seller. The shares were demated just
before the sale of shares to the assessee , who
was having no experience in share trading.
The Security Exchange Bureau of India
(SEBI) had blacklisted nearly 14 brokers for
their alleged involvement in manipulating the
market prices and rigging the markets for
jacking up the share prices. The Income Tax
Department Investigation Wing which had
conducted detailed investigation had unearthed
shell companies which specialized in
manipulating the market prices of the shares
of certain listed company on the stock
exchange by a group of persons working as a
syndicate for the purpose of providing entries
of tax exempt, bogus long term capital gains
to large number of beneficiaries in lieu of
unaccounted cash converting black money into
white without payment of tax.
The profit made from the sale of scrip
was multiple time the cost of the shares and
sale price was not supported by the financial
status of the company. The companies had
shown very meager profits and were mostly
loss making companies with negative earning
per shares. These unknown companies never
declared dividends and the Director’s report
did not show any projects or major events
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done in the operation of the company that
would attract investors to trade in the scrip.
Same set of brokerages would be seen
selling and buying the shares and the sale
prices were increased with every trade and
trading was done by the same of brokers and
also the buyers who were not assessed to tax
and had not filed return of income but have
purchased large amount of shares. Even those
persons who had filed the return of income had
declared low income and all buyers would have
made losses on account of trading in scrip.
Statements recorded from brokers/
operators had admitted using shell companies
who were the buyers trading in shares just to
jack up the prices and to keep the volume of
trade going so as not to come under the
scanner of the SEBI. The buyers of the shares
from the beneficiaries were found to have
common directors and common address and
the shares were sold by the members of same
family and same surname and same address
or from the same town. Once the operators
started rigging the prices of the shares through
circular trading and increase the price of the
shares with the help of brokers and bogus
clients and arrived at optimum amount over a
period of time. Once a period of one year was
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over (for claiming exemption) under long term
capital gains under Section 10(38) the
Operator asked the beneficiary to deliver the
unaccounted cash. Once the unaccounted cash
was delivered by the beneficiary, then the
same was routed by the operator to the books
of various papers/bogus companies which
ultimately bought the shares belonging to the
beneficiary at a very high price and these
paper companies avoided direct cash trail.
Thereafter the operator used to instruct the
beneficiary to sell the shares with a particular
lot on a particular day and time.
In the present assessee’s case, the
assessee has originally purchased 450 shares
of face value of Rs.10/- each at Rs.200/- per
share amounting to Rs.90,000/- of Dhanlabh
Mercantile Ltd, Offline on 15.1.2010 from
M/s.Excellent Barter Ltd, Calcutta. The said
company was subsequently merged with
M/s.Bakra Prathisthan Ltd and 4500 shares of
M/s.Bakra Prathisthan Ltd., were allotted to
assessee at Rs.10/- per share. The assessee
sold 4500 shares of M/s.Baktra Prathisthan
Limited on 03.01.2012 for Rs.15,83,623/-,
which had acquired for Rs 90,000/-. The
assessee had not furnished any documentary
evidence to prove the genuineness of the
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transaction in respect of purchase and sale of
shares. The assessee had not discharged the
onus cast upon him to prove the genuineness
of the transactions. The assessee had entered
into engineered transaction to generate
artificial long term capital gains and the
Explanation offered by the assessee regarding
the credit of Rs.15,86,250/- in its book was
found to be unsatisfactory and therefore, the
Assessing Officer held the same as
unexplained cash credit which was added to
the total income of the assessee as per the
provisions of Section 68 of the Act and
assessed under the head Income from other
sources.”
18. The above facts have been culled out
by the Assessing Officer as well as the CIT(A).
If such is the case, it is not known as to
whether there was any justification on the part
of the Tribunal to interfere with the order and
that too, by remanding the matter for a fresh
consideration.
19. In the decision in the case of Sumati
Dayal Vs. CIT [reported in (1995) 214 ITR
0801], the Hon'ble Supreme Court, while
considering the aspect regarding burden of
proof relating to cash credits, pointed out as
follows :
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“4. It is no doubt true that in all cases in
which a receipt is sought to be taxed as
income, the burden lies on the Department to
prove that it is within the taxing provision and
if a receipt is in the nature of income, the
burden of proving that it is not taxable
because it falls within exemption provided by
the Act lies upon the assessee. [See :
Parimisetti Seetharamamma (supra) at P. 536.
But, in view of Section 68 of the Act, where
any sum is found credited in the books of the
assessee for any previous year the same may
be charged to income tax as the income of the
assessee of that previous year if the
explanation offered by the assessee about the
nature and source thereof is, in the opinion of
the Assessing Officer, not satisfactory. In such
a case there is, prima facie, evidence against
the assessee, viz., the receipt of money, and if
he fails to rebut, the said evidence being un-
rebutted, can be used against him by holding
that it was a receipt of an income nature.
While considering the explanation of the
assessee the Department cannot, however, act
unreasonably. (See: Sreelekha Banerjee
(supra) at p. 120).”
20. The decision of the Hon'ble Supreme
Court in the case of Sumati Dayal was
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followed in the decision of the High Court of
Delhi in the case of Sanjay Kaul Vs. PCIT
[reported in (2020) 119 Taxmann.com
470] wherein it was held that where the
assessee was not a regular investor in shares
and had only invested in high risk stocks of
obscure companies with no business activity or
asset, which were identified as penny stocks,
the Assessing Officer had correctly concluded
that the assessee had entered into a pre-
arranged sham transaction so as to convert
unaccounted money into accounted money in
guise of capital loss and therefore, the alleged
short term capital loss was rightly disallowed.
21. A similar view was taken in the
decision of the High Court of Bombay in the
case of Sanjay Bimalchand Jain Vs. PCIT-1,
Nagpur [reported in (2018) 89
Taxmann.com 196]. In that case, the
assessee purchased shares of two penny stock
companies for a lower amount and within a
year, sold such shares at a higher amount. The
assessee had not tendered cogent evidence to
explain as to why shares in an unknown
company had jumped to such a higher amount
in no time and also failed to provide details of
persons, who purchased the said shares and
the transaction was held to be an attempt to
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hedge the undisclosed income as long term
capital gain.
22. In the decision in the case of Suman
Poddar Vs. ITO [reported in (2019) 112
Taxmann.com 329], the Delhi High Court
upheld the order of the Tribunal, which held
that the share transactions were bogus
because the company, whose shares were
allegedly purchased, was a penny stock. This
decision was affirmed by the Hon'ble Supreme
Court in the decision reported in (2019) 112
Taxmann.com 330.
23. In the decision of the Hon'ble
Supreme Court in the case of PCIT, Central
Vs. NRA Iron & Steel Private Limited
[reported in (2019) 412 ITR 0161], the
issue, which fell for consideration was as to
whether in a case where share
capital/premium was credited in the books of
accounts of the assessee company, the onus of
proof was on the assessee to establish by
cogent and reliable evidence after identity of
the investor companies, the credit worthiness
of the investors and genuineness of
transactions to the satisfaction of the
Assessing Officer. While answering the issue,
the Hon'ble Supreme Court, after referring to
its decisions in the case of Sumati Dayal and
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CIT Vs. P.Mohankala [reported in (2007)
291 ITR 0278], held as follows:
“8.2. As per settled law, the initial onus
is on the assessee to establish by cogent
evidence the genuineness of the transaction,
and credit-worthiness of the investors
under Section 68 of the Act. The assessee is
expected to establish to the satisfaction of the
Assessing Officer [CIT Vs. Precision Finance
Pvt. Ltd. (1994) 208 ITR 465 (Cal.) :
• Proof of Identity of the creditors
• Capacity of creditors to advance
money; and
• Genuineness of transaction.
This Court in the land mark case of Kale
Khan Mohammad Hanif v. CIT [(1963) 50 ITR
1 (SC)] and Roshan Di Hatti v. CIT [(1977)
107 ITR (SC) 938] laid down that the onus of
proving the source of a sum of money found to
have been received by an assessee, is on the
assessee. Once the assessee has submitted
the documents relating to identity,
genuineness of the transaction and credit-
worthiness, then the AO must conduct an
inquiry, and call for more details before
invoking Section 68. If the assessee is not able
to provide a satisfactory explanation of the
nature and source of the investments made, it
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is open to the Revenue to hold that it is the
income of the assessee and there would be no
further burden on the Revenue to show that
the income is from any particular source.
8.3. With respect to the issue of
genuineness of transaction, it is for the
assessee to prove by cogent and credible
evidence that the investments made in share
capital are genuine borrowings, since the facts
are exclusively within the assessee’s
knowledge.
The Delhi High Court in CIT v. Oasis
Hospitalities Pvt. Ltd. [333 ITR 119 (Delhi)
(2011)], held that :
“The initial onus is upon the assessee to
establish three things necessary to obviate the
mischief of Section 68. Those are: (i) identity
of the investors; (ii) their creditworthiness/
investments; and (iii) genuineness of the
transaction. Only when these three ingredients
are established prima facie, the department is
required to undertake further exercise.”
It has been held that merely proving the
identity of the investors does not discharge the
onus of the assessee, if the capacity or credit-
worthiness has not been established.
In Shankar Ghosh v. ITO [(1985) 23 TTJ
(Cal.) 20], the assessee failed to prove the
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financial capacity of the person from whom he
had allegedly taken the loan. The loan amount
was rightly held to be the assessee’s own
undisclosed income.
8.4. Reliance was also placed on the
decision of CIT v. Kamdhenu Steel & Alloys
Limited and Others [(2012) 206 Taxman 254
(Delhi)] wherein the Court that :
“38. Even in that instant case, it is
projected by the Revenue that the Directorate
of Income Tax (Investigation) had purportedly
found such a racket of floating bogus
companies with sole purpose of lending
entries. But, it is unfortunate that all this
exercise if going in vain as few more steps
which should have been taken by the Revenue
in order to find out causal connection between
the case deposited in the bank accounts of the
applicant banks and the assessee were not
taken. It is necessary to link the assessee with
the source when that link is missing, it is
difficult to fasten the assessee with such a
liability.
.......
10. On the issue of unexplained credit
entries/share capital, we have examined the
following judgments :
i. In Sumati Dayal v. CIT [(1995) 214
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ITR 801 (SC), this Court held that :
“if the explanation offered by the
assessee about the nature and source thereof
is, in the opinion of the Assessing Officer, not
satisfactory, there is prima facie evidence
against the assessee, vis., the receipt of
money, and if he fails to rebut the same, the
said evidence being unrebutted can be used
against him by holding that it is a receipt of an
income nature. While considering the
explanation of the assessee, the department
cannot, however, act unreasonably”.
ii. In CIT v. P. Mohankala [291 ITR 278],
this Court held that:
“A bare reading of Section 68 of the
Income- tax Act, 1961, suggests that (i) there
has to be credit of amounts in the books
maintained by the assessee; (ii) such credit
has to be a sum of money during the previous
year ; and (iii) either (a) the assessee offers
no explanation about the nature and source of
such credits found in the books or (b) the
explanation offered by the assessee, in the
opinion of the Assessing Officer, is not
satisfactory. It is only then that the sum so
credited may be charged to Income-tax as the
income of the assessee of that previous year.
The expression “the assessee offers no
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explanation” means the assessee offers no
proper, reasonable and acceptable explanation
as regards the sums found credited in the
books maintained by the assessee.
The burden is on the assessee to take
the plea that, even if the explanation is not
acceptable, the material and attending
circumstances available on record do not
justify the sum found credited in the books
being treated as a receipt of income nature.”
(emphasis supplied)
iii. The Delhi High Court in a recent
judgment delivered in PR.CIT -6, New Delhi v.
NDR Promoters Pvt. Ltd. (410 ITR 379) upheld
the additions made by the Assessing Officer on
account of introducing bogus share capital into
the assessee company on the facts of the case.
iv. The Courts have held that in the case
of cash credit entries, it is necessary for the
assessee to prove not only the identity of the
creditors, but also the capacity of the creditors
to advance money and establish the
genuineness of the transactions. The initial
onus of proof lies on the assessee. This Court
in Roshan Di Hatti v. CIT [(1992) 2 SCC 378],
held that if the assessee fails to discharge the
onus by producing cogent evidence and
explanation, the AO would be justified in
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making the additions back into the income of
the assessee.
v. The Guwahati High Court in Nemi
Chand Kothari v. CIT [(2003) 264 ITR 254
(Gau.)] held that merely because a transaction
takes place by cheque is not sufficient to
discharge the burden. The assessee has to
prove the identity of the creditors and
genuineness of the transaction. :
“It cannot be said that a transaction,
which takes place by way of cheque, is
invariably sacrosanct. Once the assessee has
proved the identity of his creditors, the
genuineness of the transactions which he had
with his creditors, and the creditworthiness of
his creditors vis-a-vis the transactions which
he had with the creditors, his burden stands
discharged and the burden then shifts to the
revenue to show that though covered by
cheques, the amounts in question, actually
belonged to, or was owned by the assessee
himself.” (emphasis supplied)
vi. In a recent judgment the Delhi High
Court in CIT Vs. N.R.Portfolio (P) Ltd. [(2014)
42 Taxmann.com 339/222 Taxman 157 (Mag.)
(Delhi) 21] held that the credit-worthiness or
genuineness of a transaction regarding share
application money depends on whether the two
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parties are related or known to each other, or
mode by which parties approached each other,
whether the transaction is entered into
through written documentation to protect
investment, whether the investor was an angel
investor, the quantum of money invested,
credit-worthiness of the recipient, object and
purpose for which payment/investment was
made, etc. The incorporation of a company,
and payment by banking channel, etc. cannot
in all cases tantamount to satisfactory
discharge of onus.
vii. Other cases where the issue of share
application money received by an assessee
was examined in the context of Section
68 are CIT v. Divine Leasing & Financing Ltd.
[(2007) 158 Taxman 440] and CIT v. Value
Capital Service (P.) Ltd. [(2008) 307 ITR 334].
11. The principles which emerge where
sums of money are credited as Share
Capital/Premium are :
i. The assessee is under a legal
obligation to prove the genuineness of the
transaction, the identity of the creditors, and
credit-worthiness of the investors who should
have the financial capacity to make the
investment in question, to the satisfaction of
the AO, so as to discharge the primary onus.
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ii. The Assessing Officer is duty bound to
investigate the credit-worthiness of the
creditor/subscriber, verify the identity of the
subscribers and ascertain whether the
transaction is genuine, or these are bogus
entries of name-lenders.
iii. If the enquiries and investigations
reveal that the identity of the creditors to be
dubious or doubtful, or lack credit-worthiness,
then the genuineness of the transaction would
not be established.
In such a case, the assessee would not
have discharged the primary onus
contemplated by Section 68 of the Act.
......
13. The lower appellate authorities
appear to have ignored the detailed findings of
the AO from the field enquiry and
investigations carried out by his office. The
authorities below have erroneously held that
merely because the Respondent Company –
assessee had filed all the primary evidence,
the onus on the assessee stood discharged.
The lower appellate authorities failed to
appreciate that the investor companies which
had filed income tax returns with a meagre or
nil income had to explain how they had
invested such huge sums of money in the
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assessee Company - Respondent. Clearly the
onus to establish the credit worthiness of the
investor companies was not discharged. The
entire transaction seemed bogus, and lacked
credibility.
The Court/Authorities below did not even
advert to the field enquiry conducted by the
AO which revealed that in several cases the
investor companies were found to be non-
existent, and the onus to establish the identity
of the investor companies, was not discharged
by the assessee.
14. The practice of conversion of un-
accounted money through the cloak of Share
Capital/Premium must be subjected to careful
scrutiny. This would be particularly so in the
case of private placement of shares, where a
higher onus is required to be placed on the
assessee since the information is within the
personal knowledge of the assessee. The
assessee is under a legal obligation to prove
the receipt of share capital/premium to the
satisfaction of the AO, failure of which, would
justify addition of the said amount to the
income of the assessee.”
24. Bearing the principles laid down in
the decision of the Hon'ble Supreme Court in
the case of NRA Iron & Steel Private Ltd., in
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TCA.No.429 of 2021
mind, if we examine the order passed by the
Assessing Officer, we find that a detailed
enquiry had been conducted by the Assessing
Officer after affording an opportunity to the
assessee. The assessee availed the opportunity
through written submissions. The assessee
was represented by an authorized
representative and thereafter a finding had
been rendered. The said finding was tested for
its correctness by the CIT(A), who approved
the same by order dated 07.8.2018.
25. We refer to the following factual
findings rendered by the CIT(A) while
dismissing the appeal filed by the assessee :
“2.1. .......In response to notices, the AR
of the assessee Shri Omprakash Jain, B.Com,
FCA of Om Jain & Associates, Chartered
Accountants appeared and filed the details of
purchase of 450 shares of M/s.Dhanlabh
Merchandise Limited, later it was merged with
M/s.Bakra Pratisthan Limited and 450 shares
converted into 4500 shares. In this connection,
the AR furnished the copy of sale bill dated
15.1.2010 of M/s.Excellent Barter Private
Limited of Shaym Nagar WB 743127 wherein it
is noticed that the assessee has purchased 450
shares of Dhanlabh Merchandise Limited @
Rs.200 each per share for a consideration of
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TCA.No.429 of 2021
Rs.90,000/-. But the bill does not contain any
distinctive numbers and it was stated 'as per
Demat form'. The AR of the assessee also
furnished the copy of transaction report from
Motilal Oswal Securities as documentary
evidence for purchase of these shares and
later converted into M/s.Bakra Pratisthan
Limited on 28.12.2011.
.....
2.2........On the perusal of the same, it is
noticed that the closing balance as on
02.3.2010 was Rs.5,607/-. On 03.3.2010,
there was a credit entry of Rs.90,000/- and a
debit entry with narration 'manual chg'
Rs.90,000/-. As per the narration of the
bankers, it is manual cheque only and the
same was passed in clearing on the same day
by Calcutta base company. It is not at all
possible.
....
2.3. As it was held by the assessee the
shares of M/s.Dhanlabh Merchandise Limited
was purchased from M/s.Excellent Barter Pvt.
Ltd. Of Shaym Nagar WB 743127, a
communication dated 28.9.2017 was sent to
M/s.Excellent Batter Private Limited calling for
the following details under Section 133(6) of
the I.T. Act 1961. By the examination of the
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TCA.No.429 of 2021
details and the same was returned unserved
by the postal authorities with remarks 'not
known'.
......
Besides the above, the AR of the
assessee has not furnished any documentary
evidences with respect to the sale of shares of
M/s.Bakra Pratisthan Limited. Instead, he
furnished the bank account copy wherein on
03.1.2012, an amount of Rs.9,50,714/- was
credited in the bank with description 'RTGS-IN-
WFIX-FIT SECURITIES'. Considering the above
fact, it is concluded as under :
2.4. The purchase of 450 shares of
M/s.Dhanlabh Merchandise Limited is itself a
sham transaction for the following reasons :
1. Based on the details filed by the AR of
the assessee and the address was provided the
assessee the communication sent by this office
to M/s.Excellent Batters Private Limited.
2. The postal remarks is 'not known'
only. The postal authorities did not mention
that the person left or something else. The
word 'not known' means that the address itself
bogus or incorrect one.
3. Accordingly, it is established that
there is no such person in that address having
name M/s.Excellent Batters Private Limited.
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TCA.No.429 of 2021
4. It is onus on the part of the assessee
to prove the genuineness of the transaction.
5. It is also noticed that the
documentary evidence filed by the assessee
towards payment made for purchase of shares
also not related to this transaction.
6. In the absence of the distinctive nos.,
in the sale bill dated 25.1.2010 of
M/s.Excellent Batters Pvt. Ltd., and hence, it is
not known that to whom the shares were
originally allotted and how the same was
subsequently transferred to the assessee for
that there is no documentary evidence
produced. The assessee HUF not furnished the
copy of name transfer application also.
7. It is also noticed from the AR of the
assessee's submission dated 15.11.2017 that
M/s.Excellent Batters P. Ltd., is a shareholder
of M/s.Dhanlabh Merchandise Ltd., but there is
no documentary evidence was filed by him.
8. As the assessee HUF itself has stated
that the HUF is doing commodities trading,
why off market transaction for purchase of
shares not reported to BSE.
Considering the above fact findings, it is
established that the purchase of 450 shares of
M/s.Dhanlabh Merchandise Limited from M/s.
Excellent Barter Private Limited by the
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TCA.No.429 of 2021
assessee is itself a sham transaction.
Accordingly, the documentary evidence
furnished by the assessee towards purchase of
shares of 4500 M/s.Bakra Pratisthan Limited is
not a genuine one and hence, the claim of
exemption under Section 10(38) towards
selling of the same is not entertained.
....
7.11. It can be seen from the client
statement of Shri Ashok Kumar Kayan that not
only the assessee but the following members
of the HUF family members have also invested
in the said impugned shares :
SNo Name PAN Amount
01 Karuna A Jain AGTPJ5140K 25,46,855
02 Abhishek Jain AEUPJ3242F 15,93,300
03 Abhishek M Jain HUF AAJHA1645J 15,86,250
04 Amit Kumar AEEPA9942F 15,86,250
05 Amit Kumar I Jain HUF AAJHA1641N 15,86,250
06 Hitesh M Jain HUF AADHH3539N 10,57,500
07 Mamta M Jain AFJPM4958B 9,52,290
08 Manish D Jain HUF AAJHM6100N 15,86,250
(assessee)
09 Nitin I Jain AEPPN8578R 15,86,250
10 Nitu Amit Jain AEZPJ1421K 22,21,695
11 Rajesh D Jain AEOPR8702G 15,93,300
12 Shilpa M Jain AGZPJ9692C 15,93,300
Total 1,94,89,490
From the above table, it is established that the
entire family involved in this operation to
convert their black money into white. It is a
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TCA.No.429 of 2021
sham transaction only.
....
9. Considering the above factual position
as also the legal position, it is held that the
assessee has entered into an engineered
transaction to generate artificial long term
capital gains. As the explanation furnished by
the assessee regarding the credits of
Rs.15,86,250/- in its books is found to be
unsatisfactory, the same are hereby held as
'unexplained cash credits' in the books of the
assessee and accordingly added to the total
income of the assessee in accordance with the
provisions of Section 68 of the IT Act, 1961
and assessed under the head 'income from
other sources' Penalty proceedings under
Section 271(1)(c) read with Explanation 1
thereto are separately initiated for furnishing
the inaccurate particulars of income with
respect to the claim of capital gain made in the
light of the findings made in the preceding
paragraphs.
......
7.3.......However, in the present appeal,
the appellant purchased the shares of
M/s.Bakra Pratisthan Limited in off market.
During the course of the hearing on 24.7.2018,
the AR admitted that the assessee purchased
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TCA.No.429 of 2021
the shares of M/s.Dhanlab Merchandise Limited
in off market.
.....
7.4. These shares were purchased
through off market and not through Stock
Exchange.
The notice under Section 133(6) dated
28.9.2017 sent by the Assessing Officer to
M/s.Excellent Barter Private Limited from
which the assessee had purchased the shares
of M/s.Dhanlab Merchandise Limited was
returned unserved with remark 'not known'.
Moreover, the assessee did not bring any
other material on record to establish the
genuineness of the purchase of shares.
M/s.Bakra Pratisthan Limited did not pay
dividend or did not issue bonus shares during
the period of holding of these shares by the
assessee corresponding to the increase in the
price of the share of M/s.Bakra Pratisthan
Limited. During this period, there has been no
corporate announcement by M/s.Bakra
Pratisthan Limited which suggests that the
company is undertaking any substantial
development activity.
The above facts were not disputed by the
appellant.
These facts clearly establish that the
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TCA.No.429 of 2021
share prices of M/s.Bakra Pratisthan Limited
were artificially hiked.
.....
7.6. In the present case also, the shares
were purchased through off market and not
through Stock Exchange and selling rates were
artificially hiked later on.”
26. The above findings will clearly show
that not only the Assessing Officer, but also
the CIT(A) examined the modus operandi of
the assessee and held that the shares were
purchased through off market and not through
Stock Exchange and that the selling rates were
artificially hiked later on. The above findings
have not been set aside by the Tribunal and
there is no reason for the Tribunal to remand
the matter to the Assessing Officer for a fresh
consideration.
27. As pointed out in the decision of this
Court in the case of Cholamandalam MS
General Insurance Co., we find in the instant
case that there was no material, which
necessitated the remand of the case to the
Assessing Officer and it is a clear case where
the Tribunal had failed to exercise its
jurisdiction in the manner known to law. The
Tribunal, being a last fact finding Authority, is
under the legal obligation to record a correct
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TCA.No.429 of 2021
finding of fact. It has been held in the cases of
(i) M.R.M.Periyannan Chettiar Vs.
CIT [reported in (1960) 39 ITR 159
(Madras)]
(ii) V.Ramaswamy Iyengar Vs. CIT
[reported in (1960) 40 ITR 377 (Madras)]
(iii)Hindustan Sanitary Ware and
Industries Ltd. Vs. CIT [reported in
(1978) 114 ITR 85 (Calcutta)]
(iv) CIT Vs. Ishwardass
[reported in (1986) 158 ITR 168 (Delhi)]
and
(v) CIT Vs. Harikishan Jethalal Patel
[reported in (1987) 168 ITR 472
(Gujarat)]
that the power to remand the case should be
exercised on judicial principles.
28. Further, in the decisions in the cases
of
(i) United Commercial Bank Vs. CIT
[reported in (1982) 137 ITR 434
(Calcutta)]
(ii) Darjeeling Dooars
Plantations Vs. CIT [reported in (1988)
174 ITR 37 (Calcutta)] and
(iii)Siemens India Ltd. Vs. CIT
[reported in (1997) 226 ITR 801
(Bombay)],
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TCA.No.429 of 2021
it was held that where all the evidence had
been produced and the CIT(A), after full
investigation of the evidence and examination
of the accounts, had given a definite finding on
the question in issue, the Tribunal's order of
remand was held to be invalid.
29. Further, in the recent decision of the
Hon'ble Division Bench of this Court in the case
of Tharakumari Vs. ITO [TCA.No.128 of
2019 dated 11.2.2019], the appeal filed by
the assessee in a case relating to penny stock
was dismissed after noting the factual findings
rendered by the Assessing Officer, the CIT(A)
and the Tribunal. Thus, for all the above
reasons, we hold that the order passed by the
Tribunal calls for interference.
30. In the result, the above tax case
appeal is allowed, the impugned order passed
by the Tribunal is set aside and the substantial
questions of law framed are answered in
favour of the Revenue and against the
assessee.”
7. Since the above legal position fully covers the issue in the
case on hand, no useful purpose will be served in ordering notice to
the respondent and more particularly when the above legal position
attained finality and the assessee therein or any other assessee,
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TCA.No.429 of 2021
whose case was dealt with in similar matter had filed any appeal.
8. For all the above reasons, the above tax case appeal is
allowed, the order passed by the Tribunal is set aside and the order
passed by the CIT(A) is restored. The substantial question of law
raised is answered in favour of the Revenue.
24.8.2021
To
The Income Tax Appellate Tribunal, Chennai 'C' SMC Bench
RS
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TCA.No.429 of 2021
T.S.SIVAGNANAM,J
AND
SATHI KUMAR SUKUMARA KURUP,J
RS
TCA.No.429 of 2021
24.8.2021
https://www.mhc.tn.gov.in/judis/
