TMI Blog2020 (8) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... d prejudicial to the interest of the revenue. Accordingly, all the grounds of appeal of the assessee revolving on the challenge to the order passed u/s 263 of the income tax act by the learned principal Commissioner of income tax are dismissed. - ITA No. 6863/Del/2019 - - - Dated:- 21-8-2020 - Shri Prashant Maharishi, Accountant Member And Shri K.N. Chary, Judicial Member For the Assessee : Shri Dinesh Agarwal, CA For the Revenue : Smt Sushma Singh, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld Pr. CIT, Faridabad dated 31.07.2019 passed u/s 263 of the Income Tax Act, 1961 for Assessment Year 2016-17 holding that the order passed by the ld ACIT, Circle-2(1), Faridabad u/s 143(3) of the Act dated 27.08.2018 is erroneous and prejudicial to the interest of the assessee as the assessment records establishes that there were no enquiries whatsoever and assessment was passed in a stereotype manner without examining the genuineness of the claim of the assessee of long term capital gain shown as exempt income u/s 10 (38) of the act. 2. The assessee has raised following ground of appeal:- 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason Code BL01.02 in order to check whether the capital is genuine and from disclosed sources. 5. The notice u/s 143(2) of the Act was issued to the assessee through ITBA on 05.09.2017, which was replied. A questionnaire was issued on 09.07.2018 through ITBA and a query letter on 12.07.2018 was issued through ITBA. The ld AO noted that the assessee filed his response, which was examined and accepted the return of income of the assessee by framing of assessment order u/s 143(3) on 27.08.2018. 6. The ld Pr. CIT examined the records and noted that the assessee on long term capital gain of ₹ 54,96,796/- claim as exempt u/s 10(38) of the Act on sale of shares of Fidelo Power and Infrastructure Ltd. He noted that the assessee purchased 15 lakhs shares of that company in Assessment Year 2013-14 for ₹ 1/- per share. Later on that company merged with Yamini Investment Company Ltd and in turn, the assessee got 12 lakhs shares of that company. The assessee sold those shares and has earned above capital gain. The ld Pr. CIT was of the view that there was no information available of this corporate merger and the ld AO did not examine this fact. He further noted that the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of ₹ 1,69,24,770/- which has been wrongly mentioned by the ld AO of ₹ 5871020/-. He submitted that his opening balance of his capital as on 01.04.2015 was ₹ 9,36,63,253/- and closing balance as on 31.03.2016 was ₹ 11,74,41,790/- wherein, net increase of ₹ 2,37,78,537/- was made. He submitted that the assessee has earned long-term capital gain of ₹ 8748000/- on sale of shares of KCB Engineering Pvt Ltd and ₹ 3960000/- on sale of shares of RQS Engineering Pvt. Ltd. He also earned short-term capital gain of sale shares of ₹ 699930/- and long-term capital gain exempt u/s 10(38) ₹ 54,96,795/-. The assessee has also sold rural agricultural land and earned capital gain of ₹ 1070000/- which is also claimed as exempt as the land was not a capital asset. The assessee submitted that before the ld AO assessee submitted the details of agricultural income. His main arguments were as under:- i. That the case was selected for limited scrutiny , which was not converted into complete scrutiny . Therefore, the ld AO could not have enquired earning of the exempt capital gain of the assessee, therefore, no fault can be found with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue, if in the opinion of the ld PCIT, the order is passed without making enquiry or verification, which should have been made. In the present case, the issue was increase in capital for which the case of the assessee was selected for scrutiny. The assessee has earned long-term capital gain on sale of shares, which has been credited in the capital account of the assessee. The ld AO has accepted the submission of the assessee and accepted the documents submitted without any further enquiry. He submitted that when the case of the assessee is selected with a specific purpose and if the ld AO merely accepts the submission of the assessee without making any enquiry thereon, the assessment order becomes erroneous and prejudicial to the interest of the revenue. He submitted that this has happened in the case of the assessee where substantial capital gain exempt from tax has been earned by the assessee the ld AO did not verify anything such as merger and restructuring of that share which are sold at huge price increase, even the price rise in the share in the short-term was also not questioned, therefore, the order is passed without any enquiry, hence, that order is erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e added to the capital during the year and ₹ 18.54 lakhs were miscellaneous drawing and other expenses, which decrease the capital. Therefore, there was a net increase in the capital of ₹ 2,37,78,537/-. Due to this opening capital of ₹ 9,36,63,253/- became ₹ 11,74,41,790/- as per the various items which increase the capital. Assessee has earned a long-term capital gain from sale of shares of a private limited company of ₹ 87.48 lakhs and another private limited company of ₹ 39.60 lakhs. He has also earned short-term capital gain on sale of shares of private limited company of ₹ 6.99 lakhs. He also earned gain on sale of agricultural land of ₹ 10.70 lakhs. However, he also earned long-term capital gain exempt u/s 10(38) of the Act of ₹ 54,96,795/- . Vide letter dated 13.08.2018, assessee submitted the details of shares of private limited company. The assessee also submitted that he has purchased 15 lakhs shares of Fidelo Power and Infrastructure Ltd of ₹ 15 lakhs @ 1/- share in FY 2013-14 on 27.03.2014 from M/s. Surya Build Co. Pvt. Ltd. After that Fidelo Power and Infrastructure merged with Yamini Investment Co. Ltd and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvisors Ltd, broker of the assessee and the various bills of that broker. These details are available from page Nos. 250 to 259 of the paper Book. On the basis of above information submitted by the assessee, the ld AO accepted the claim of exemption and passed the order u/s 143(3) of the Act. The ld AO did not make any enquiry as to how the shares purchased by the assessee of a company @ ₹ 1 /- per share, suddenly within three years, shoot up by more than 57 times. Thus, ld AO did not enquire about increase in price of shares. The AO also did not enquire about the acquisition of those shares and merger of the company. Therefore, the ld PCIT on examination of record found that claim of exempt of ₹ 54,96,796/- u/s 10(38) of the Act was allowed to the assessee without any enquiry. The main contention of the assessee is that the transaction entered into by him are genuine, supported by proper documentary evidence carried out by account payee cheque and in absence of any allegation otherwise, the ld PCIT could not have assumed jurisdiction under that section. The ld PCIT found that acceptance by the ld AO of the claim of exemption by assessee lacked the necessary enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee sold these 10000 shares @ 963.54 per share. Therefore assessee has shown that she has sold the shares of the company which has been bought by her on 22/2/2102 @ ₹ 10/-per share has been sold by her on 26/2/2014 within a span of almost two years at the astronomical price of ₹ 963.54 per share resulting in to a gain of almost 96 times of the original investment. On these facts in case of the assessee, case was selected for scrutiny for the reason that suspicious transactions relating to long-term capital gain on shares is required to be verified. 8. During the course of assessment proceedings the assessee submitted following details :- a. bank statements showing payment of INR 100,000 to Trinity trade Link through cheque numbers 619395 for allotment of 10,000 shares b. Demat account transaction statement for a period from 01/04/2012 2 31/03/2012 issued by the Parasram Holdings private limited to show that shares of the Trinity trade Link private limited transferred in the demat account of the assessee c. financial statement and the detailed transaction Ledger issued by Parasram Holdings private limited ( broker) showing that the gross sale consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Loss etc). 2. It is informed that the said instruction is in the context of investigation conducted by Kolkata Investigation Directorate in respect of large number of penny stock companies, whose share prices were artificially raised on the Stock Exchanges in order to book bogus claims of Long Term Capital Gains or Short Term Capital Loss by various beneficiaries. Extensive investigation, including search and seizure/survey action on entry providers, riggers, beneficiaries etc. was conducted by the Investigation Directorate in such cases. Based upon outcome of such investigation and analysis of the data, the Systems Directorate has now uploaded details of such information in respect of individual assessees who have made transactions in such penny stocks. 3. Vide EFS Instruction under reference a new button 'Penny Stock' has been added on Individual Transaction Screen (ITS) to display information related to penny stock, now enabled on the screen of the Assessing Officers (AOs). Available information regarding the manipulative transactions has been captured in the functionality, including the investigation report of the Kolkaia Investigation Directorate. The fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also specified to identify the bogus long-term capital gain. According to the instructions there are several information to be collected from the assessee such as the copy of the Demat account, history of assessee in share transaction in earlier years, crystallization of extraordinary income and try to match the same with the purchase of shares, normal business of the assessee or family or firm in which the assessee is a major stake holder to trace the source of unaccounted cash in case of long-term capital gain or use of unaccounted cash generated from long-term capital gain, statement of assessee which can be taken at any stage by pointing out his inefficiency for dealing in shares and questioning his wisdom about investment in penny stocks as companies are devoid of any financial worth, and the source of purported initial investment shown whether in cash or cheque and the date of transfer of money from bank account of the assessee to the bank account of the broker. The assessing officers are further directed to gather certain information from other sources such as copy of contract notes and how the order was placed , share transactions from the broker of the assessee and copy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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