ORDER
Bhargav D. Karia, J. – Heard learned Senior Standing Counsel Mr. Karan Sanghani for the appellant.
2. This appeal is filed under section 260A of the Income Tax Act, 1961 [for short ‘the Act’] proposing following substantial questions of law arising out of the order dated 18.09.2023 passed by the Income Tax Appellate Tribunal, Surat [for short ‘the Tribunal’] in ITO v. Gopalbhai T Patel (HUF) (Surat-Trib.)/ITA No. 498/SRT/2023 for the Assessment Year 2011-12:
“1. Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in deleting the addition of sale proceeds of the share of Rs. 7,15,679/ on account of unexplained income arising out of sale of shares of Global Capital Markets Limited, a penny stock and without appreciating the findings of the Assessing Officer that the price movement of the company were not supported by financial fundamentals of the company?
2. Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in allowing the appeal of the Assessee without considering the merits of the case only on the basis of AO has not confronted with the statement or relevant part of material to the assessee when AO has already provided the relevant part of the information to the asseseee which related to the assessee’s case?
3. Whether on the facts and circumstances of the case and in law the order of the Hon’ble ITAT suffers from perversity as it ignores the facts brought on record establishing manipulation of share prices of Global Capital Markets Limited as the upward movement of share price was not at all justified by the economic fundamental of company?
4. Whether on the facts and circumstances of the case and in law, the order of the Hon’ble ITAT was justified in holding that examine the was deprived off to assessee information documents when the principle of natural justice the cross have been duly followed and by issuing show cause and reason for re-opening containing relevant part of the Kolkata Investigation Wing’s report?
5. Whether on the facts and circumstances of the case and in law the Ld. Tribunal erred in deleting the disallowance of Long Term Capital Gains of Rs. 7,15,679/- overlooking the fact that the entire transactions were stage managed with the object to facilitate the Assessee to plough back its unaccounted income in the form of fictitious Long Term Capital Gains and claim bogus exemption?
6. Whether on the facts and circumstances of the case and in law, the Ld. Tribunal was justified in holding the sham transactions of the Assessee as genuine simply on the ground that the shares were held by the Assessee, as an investor for a period of seven/eight years and overlooking the investigation carried out by the Income Tax Department?
7. Whether on the facts and circumstances of the case and in law, the Ld. Tribunal was justified in holding that the ratio of the decision of the Hon’ble Kolkata High Court in the case of PCIT v. Swati Bajaj, ITA No. 06/2022, dated 14.06.2022 is not applicable and has not appreciated that the addition in the said case has been made on the basis of the inquiry report of the Kolkata Investigation Wing?”
3. Brief facts of the case are as under:
3.1 The respondent-assessee filed return of income for the Assessment Year 2011-12 declaring the taxable income of Rs. 4,85,210/- on 27.07.2011.
3.2 The case of the petitioner was reopened on the basis of the information received that the assessee made transaction of Rs. 7,15,679/-during the year under consideration in penny stock named “GLOBAL CAP M” having scrip code: 530263.
3.3 The Assessing Officer on the basis that there is failure on the part of assessee to disclose the transactions related to to penny stock, issued notice u/s. 133(6) of the Act on 15.03.2018. However, no reply was filed by the assessee against the above notice. Thereafter, the Assessing Officer after taking necessary approval and recording reasons, issued notice u/s. 148 of the Act on 30.03.2018. The assessee submitted his reply dated 22.08.2018 asking the Assessing Officer to treat original return filed on 25.07.2011 as return filed in response to notice u/s. 148 of the Act. Thereafter, notices u/s. 143(2) and 142(1) alongwith copy of reasons was issued to the assessee on 23.08.2018. The assessee filed his objections against reopening of assessment on 05.10.2018 requesting the Assessing Officer to drop the proceedings. The objections were disposed of by AO vide order dated 05.10.2018.
3.4 The Assessing Officer issued a show-cause notice dated 14.11.2018 asking the assessee to explain as to why transaction of Rs. 7,15,679/- made in Global Capital Markets Ltd should not be added to income of assessee.
3.5 In response to the show-cause notice issued by the Assessing Officer, the assessee filed reply dated 28.11.2018 along with copy of return of income, computation of total income, Bank Statement showing gain earned on sale of scrip, copy of Demat account, broker note of shares sold and copy of ledger account of broker.
3.6 The Assessing Officer, however, did not accept the reply and held that he was having information that the scrip of Global Capital Markets Ltd is used for generating bogus long term capital gain and long term capital loss by recording modus operendi of penny stock and held that entities involved in the transactions were either bogus or devoid of any financial capacity to make investment. The Assessing Officer disallowed the entire credit of Rs. 7,15,679/- as unexplained capital by above passing assessment order dated 06.12.2018.
3.7 Being aggrieved, the assessee preferred appeal before the CIT (A) and further explained that the assessee has earned capital gain of Rs. 3,31,781/-which was shown in the return of income. The assessee also explained that the 4000 shares were purchased on 27.03.2003 in the Demat Account and the scrips were held for more than 07 years and ultimately sold on 23.09.2010 through Bombay Stock Exchange.
3.8 The CIT (A), considering the facts of the case, deleted the addition. Being aggrieved the appellant revenue preferred an appeal before the Tribunal. The Tribunal after considering the facts of the case and the holding of the investments made in shares by the respondent assessee for more than seven years upheld the order of the CIT (A) by observing as under:
“12. I have considered the rival submissions of the parties and have gone through the orders of the lower authorities. I have also deliberated on the various case laws relied by the parties. I find that the assessing officer made addition of Rs. 7,15,679/ solely on the basis of information available with him. Neither the source of such information is recorded in his assessment order nor such information was shared with the assessee. The assessee in his reply, specifically mentioned that Assessing Officer considered the sale entry twice including one which is reversed on the same date. Even such fact was not examined by assessing officer, The assessing officer made addition of credit without application of mind. The assessee explained that he made transaction of sale of shares in the legitimate manner and paid STT. The assessee further explained that the holding period of the shares was more than seven years and all the evidences with regard to purchase and sale of scrips was furnished. No comment on such evidence was made by assessing officer on such evidences. The assessing officer has not discussed the basic fact, whether the name of assessee was mentioned in the alleged information or the broker of the assessee was involved in price manipulation with stock exchange.
13. I find that the Id CIT(A) granted relief to the assessee buy taking view that complete details of transaction in the form of contract note from broker’s ledger, D-mat account and bank statement was furnished by the assessee The assessee proved the bona fide of nature and source of sum credit in his books. Such explanation provided by assessee has not been considered by Assessing Officer. Assessing Officer has not confronted with any statement or relevant part of material to the assessee, which was violated the principle of natural justice. It was also held that the Assessing Officer has not brought any material on record regarding turnover or profit or net worth of Global Capital Markets Ltd, which is still continuing be traded on BSE or barred by Security and has not been backlisted Exchange Board of India. The shares were purchased through Calcutta Stock Exchange on 27.03.2003 and at that time STT Regulation has not come in force. I find that the ld. CIT(A) while granting relief to the assessee considered entire facts and the evidence filed before him, which does not require any interference, which is affirmed. “
4. From the facts emerging from the record, it appears that the addition of Rs. 7,15,679/- made by the Assessing Officer is made only on the basis of the information available without recording as to from where such information has been received nor such information was shared with the assessee.
5. The assessee in the reply has specifically submitted that the assessee has purchased the shares in 2003 which were sold in the Year 2010 and therefore there is no element of earning long term capital gain within a period of less than one year so as to disallow the entire sale consideration as unexplained investment by the Assessing Officer. It is also not in dispute that the assessee has sold the shares through stock exchange and has also paid the STT.
6. In view of such findings of facts recorded by the CIT(A) and the Tribunal, no question of law much less any substantial question of law arises from the impugned order of the Tribunal. The appeal therefore, being devoid of any merits, is accordingly dismissed.