Shri Shobit Gupta vs The A.C.I.T

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-

This appeal by the assessee is directed against the order of the Id. Id. CIT-30, Central, Delhi dated 26.09.2022 pertaining to A.Y 2016-17.

Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. Judicial decisions relied upon duly considered.

Briefly stated, the facts of the case are that the assessee is an individual and filed his return of income on 30.07.2016 declaring total income at Rs. 23,53,710/-.

The AO received information from Investigation Wing, Mumbai, gathered from the search on some share brokers and other related entities which were suspected to be involved in misusing the stock market platform for generating manipulative trades in derivative segment for providing bogus loss and profit, that shares of M/s Goenka Business and Finance Limited was used to provide accommodation entries of bogus LTCG. As per the information received from CRUI module, the name of Sh. Shobhit Gupta PAN AAPPG5076K figured in the above mentioned beneficiaries list with trade value of Rs. 94,14,200/- from the Shares of M/s Goenka Business and Finance Limited.

Accordingly, the case of Sh. Shobhit Gupta was reopened u/s 147 of the Income-tax Act, 1961. The proceedings u/s 148 of the Act were initiated after duly recording the reasons in writing and obtaining sanction dated 27.03.2021 of the JCIT, CR-8, New Delhi in accordance with the provision of the section 151 of the Act. Notice u/s 148 of the Act dated 30-03-2021 was issued, in response to which the Assessee e-filed his return of income for A.Y. 2016-17 on 28/04/2021 declaring income of Rs. 23.53,710/-. The copy of reasons to believe for reopening the case u/s 147 read with section 148 of the Act were provided to the assessee. The notice u/s 143(2) of the Act, was also issued to the assessee through ITBA system on 06/07/2021 on 21.03.2014.

The facts of the case is that the assessee purchased 10,000 shares of M/s Goenka Business and Finance Limited (GBFL) (@ Rs. 10 per share) through his broker M/s Knit Worth Lease Finance Ltd. for Rs. 100,000/-. These shares were received in physical form with a lock in period of 12 months which were later dematerialized.

These 10,000 shares were sold by the assessee on various occasions in FY 2015-16, at a total consideration of Rs. 47,06,745/- on BSE through a broker named M/s K.K. Securities Ltd. The assessee declared long term capital gain on sale of these shares to the tune of Rs. 45,91,197/- and claimed the same as exempt u/s 10(38) of the Act. The Assessing officer held that the assessee has failed to discharge his onus with respect to proving the genuineness and creditworthiness of the transaction of sale of shares of M/s Goenka Business and Finance Ltd and added the amount of Rs. 45,91,197/-, claimed as exempt LTCG from sale of shares of M/s Goenka Business and Finance Ltd, u/s 68 of the Act. Further, the AO also added the cost of acquisition including transfer expenses amounting to Rs. 1,15,903/- as the assessee failed to substantiate its claim of purchase.

Aggrieved, the assessee filed an appeal before the CIT(A), who confirmed the assessment order.

Now the further aggrieved assessee is in appeal before us. The assessee has challenged the reopening u/s 147; challenged the approval u/s 151 being without application of mind; and claimed violation of natural justice as no opportunity for cross examination was provided. The assessee has also challenged the CIT(A) order on merits.

Before us, the Id AR submitted that during the course of the assessment proceedings, in reply to notices, the assessee appeared and submitted the relevant replies and documents viz., (a) bank statement, (b) Contract notes and (c) transaction account statement with the registered broker namely M/s K.K Securities Ltd to prove the legitimacy of the transactions. De hors these factual aspects the Assessing Officer only on the basis of some investigation report had chosen to make the addition in this case by invoking the provisions of section 68 of the Act.

The Id. counsel for the assessee vehemently submitted that the Assessing Officer has concluded the reassessment proceedings, merely on the basis of surmises and conjectures, without considering that there is no connection of the alleged entry providers, much less brought on record by the Assessing Officer, without conducting any independent inquiry, without bringing on record any evidence against the assessee, against the principles of natural justice, in violation of the settled legal jurisprudence and merely and only following the alleged report.

The Id AR further submitted that the Id. CIT(A) without considering the submissions of the assessee, without pointing out any defects in the documents submitted, confirmed the assessment order in a mechanical manner. The Id AR stated that Id. CIT(A) has passed the order on irrelevant and extraneous contentions mainly focusing on the modus operandi of the penny stock cases rather than linking the same to the facts of the present case.

The Id AR submitted that the payments were received through banking channels and transaction were done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account and the assessee does not know the buyer. There is no evidence that assessee has paid cash in return of the receipt through cheque. In other words, there is no evidence that the cash was recycled.

The Id AR further stated that it may be the case that the share price of M/s Goenka Business and Finance Ltd could be subject matter of artificial price rigging, but there is no evidence brought on record by the Ld. AO that either the assessee or his stock broker was involved in connived transactions in order to earn the exempt long term capital gains. The Id. counsel for the assessee relied on the decision of the Hon'ble Delhi High Court in the case of Pr. CIT vs. Karuna Garg in ITA No.477/2022 order dated 23rd November, 2022 where it was held that an astronomical increase in the share prices of the company, in itself, is not a justifiable ground for holding the LTCG to be an accommodation entry. Reliance in this regard was further placed on the decision of Pr. CIT vs. Sandipkumar Parsottambhai Patel [2023] 150 taxmann.com 192 (Gujarat).

The Id AR stated that the Assessing Officer has only relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing and has made no independent enquiry from the relevant parties or independent source or evidence. The AO has not even got confirmed or corroborated by the person, the statement recorded by the Investigation Wing, during the assessment proceedings. The Id AR relied on the decision of the jurisdictional High Court in the case of Pr. CIT v. Smt. Krishna Devi [2021] 126 taxmann.com 80 (Delhi).

The Id AR argued that there is no any kind of involvement of the assessee in case of any price rigging or price increase. The assessee is a regular investor and there is no adverse report against the Assessee. The Id AR submitted that there is no whisper either in the reassessment order or the CIT(A) order that the assessee has taken an accommodation entry or has routed his unaccounted money. The bank statement evidencing receipt of funds from the Share Broker has already been furnished in the course of assessment proceedings. The Assessing Officer has not brought any material indicating that said amount proposed to be taxed has not been received from the Share Broker or the sum received is from the sources other than the sale consideration claimed against sale of shares. No evidence has been brought on record to establish any link between the assessee herein with the entry operators who were allegedly involved in price rigging of shares artificially or any other person named in the assessment order being involved in any price rigging and also the exit provider.

The Id AR vehemently argued that there is absolutely no adverse material to implicate the assessee. Any suspicion how so ever strong, cannot partake the character of legal evidence. Reliance in this regard is placed on the decision of PCIT v. Sandipkumar Parsottam bhai Patel [2023] 150 taxmann.com 192 (Gujarat).

The Id AR further submitted that no cross examination of such person whose statement has been recorded, was granted to the assessee despite being specially asked for.

The Id AR relied upon the following cases of Gupta family, which has been allowed by the ITAT Delhi Benches:

Per contra, the Id. DR relied upon the orders of the authorities below. The Id DR further relied upon the following case laws:

In his rejoinder, the Id AR submitted that the facts in the Zulu Merchandise is distinguishable, as the AO in the case of Zulu Merchandise had conducted detailed enquiry, whereas there was no independent enquiry in the instant case by the AO. The Id AR further distinguished the case of PCIT V Swati Bajaj 446 ITR 56(Cal).

We have heard the rival submissions and have carefully perused the relevant material on record. We find that whereas the assessee submitted the documents and evidence to discharge its onus of proving the transaction in shares as genuine, the AO has not been able to point out any deficiency/defects in the document. We further note that the AO has extensively relied on the Investigation report with regard to manipulations and misuse of stock market platform for generating manipulative trades in shares, but he has not established any direct link/nexus between the assessee or its broker with the operation of generating bogus loss or profit. We do not find that the AO has brought in any cogent evidence on record to establish the fact that the assessee was directly involved in converting his unaccounted income into exempt long term capital gains by conniving with the so-called entry operators and brokers who were involved in artificial price rigging of shares. The AO has made no effort by way of issuance of notices u/s 133(6)/131 to various parties involved and to enquire about the involvement of the assessee, in particular, in the aforesaid sham transaction. The AO has simply adopted the Investigation Report. We are therefore of the considered view that merely placing reliance on the Investigation report, without further collecting and garnering cogent evidence/materials to corroborate the Report, the AO cannot justify his conclusion that the transaction is sham and bogus. We are fortified in our view by the decision of the hon’ble Delhi Court in the case of PCIT V Smt Krishna Devi (supra).

We further note that the ITAT, has in the case of other members of the Gupta family, relied upon as above, and in assessee’s own case for AY 2012-13 and AY 2013-14, have allowed the appeal of the assessee wherein the AO has used the same Investigation Report for disallowing the LTCG u/s 10(38) of the Act, though in context of different share. In the case of Archit Gupta and Udita Gupta,(supra) the issue involved LTCG claimed on the same scrip i.e., M/s Goenka Business & Finance Ltd. We are therefore of the considered view that the Revenue authorities have failed to substantiate their findings that the impugned transactions in shares was sham and bogus. We therefore allow the ground 1 and 2.

The other legal ground regarding mechanical approval u/s 151, has not been proved by the assessee. The same is therefore dismissed.

As the appeal is decided on legal ground, the issues on merits is not adjudicated upon.

In the result, the appeal of the assessee in ITA No. 2530/DEL/2022 is partly allowed.