Assessee is appeal to exemption under section 10(38) from long term capital assets.

Ramprasad Agrawal Vs. ITO, ITA No. 1228/m/2018

O R D E R:

Per Rajesh Kumar, Accountant Member:
The above titled two appeals have been preferred by the assessee against the order dated 31.07.2018 & 15.12.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2013-14 & 2014- 15 respectively.

ITA No.4843/M/20182.

2. The grounds raised by the assessee are as under:
“1. The Income tax Officer – 2(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) erred in issuing notice under section 148 of the Act. The appellant contends that on the facts and in the circumstances of the case and in law, the issue of notice under section 148 is without jurisdiction, bad in law and hence, needs to be quashed.

2. The Commissioner of Income-tax (Appeals) – 6, Mumbai (hereinafter
referred to as the CIT(A)) erred in upholding the action of the Assessing Officer in making an addition of a sum of Rs 83,45,689 under section 68 of the Act holding the capital gains on sale of long-term capital assets being, shares of Rutron International Ltd to be non-genuine and thereby not allowing exemption under section 10(38) of the Act.

The appellant contends that on the facts and in the circumstances of the case and in law, the ClI(A) ought not to have upheld the action of the Assessing Officer in considering the capital gains on sale of long-term capital assets being, shares of Rutron International Ltd to be non-genuine inasmuch as the said shares have been purchased during an earlier year are investments; the same being sold shall necessarily give rise to capital gains and the impugned shares being long-term capital asset, the capital gains Rs 83,45,689 are long-term capital gains in respect of which the Assessing Officer ought to have allowed exemption of section 10(38) of
the Act; accordingly, the impugned addition under section 68 of the Act is not justified.

The appellant further, contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the assessment order has been framed in violation and utter disregard to the principles of natural justice inasmuch as, among st others, the Assessing Officer has not given the documents/ statements on oath to the appellant for rebuttal, which are in his possession and on which he has relied upon and has not given an opportunity to the appellant to cross examine the persons whose statement the Assessing Officer has relied upon.

The appellant further, contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the Assessing Officer has not proved that the cash emanated from the coffers of the appellant.”

3. At the time of hearing the Ld. A.R. did not press the ground No.1 which is against the issue of notice under section 148 of the Act and therefore same is dismissed as not being pressed.

4. The issue raised in 2nd ground of appeal is against the confirmation of addition of Rs.83,45,689/- by the Ld. CIT(A) as made by the AO by treating the capital gain on sale of long term shares of Rutron International Ltd. as non genuine and holding that exemption under section 10(38) of the Act was not allowable.

5. The facts in brief are that the assessee is director of M/s. Sudhir Switch gears P. Ltd. and earns income by way of salary from the said company, house property, other sources and long term capital gain. The assessee filed return of income on 27.03.2014 declaring income of Rs.21,22,111/- which was processed under section 143(1). Thereafter, the case of the assessee was reopened under section 147 of the Act by issuing
notice under section 148 of the Act after the AO received information from DGIT (Inv.), Kolkata vide letter dated 08.09.2016 that some companies were engaged in the business of issuing penny stocks for which there were large number of beneficiaries claiming bogus long term capital gain/short term capital loss/business loss/speculation loss. The AO, based on the said information, found that assessee is one of the beneficiaries of the said racket and had earned profit on sale of investments in equity shares of Rutron International Ltd. to the tune of Rs.83,45,689/- and claimed the same as exempt under section 10(38) of the Act as per details below:

Scrip Name : Rutron International Ltd.
Sale date	No. of shares sold	Sale consideration	Purchase date	Purchase Cost	Capital gain
14.02.2013	5000	1100624.69	2.12.2011	50000	1050624.69
18.02.2013	4000	903408.68	2.12.2011	40000	863408.68
19.02.2013	5000	1132517.10	2.12.2011	50000	1082517.10
01.03.2013	14370	1070535.64	2.12.2011	43700	1026835.64
7.03.2013	630	158575.89	2.12.2011	6300	152275.89
08.03.2013	5000	1252520.78	2.12.2011	50000	1202520.78
12.03.2013	2000	515021.11	2.12.2011	20000	495021.11
13.03.2013	6000	1543173.2	2.12.2011	60000	1483173.20

18.03.2013

4000

4000

2.12.2011

40000

989311.86

6. The AO came to the conclusion that the said capital gain of Rs. Rs.83,45,689/- on the sale of share of Rutron International Ltd. was earned by the assessee through connivance with the operator to avoid taxes. The AO also noted that the price of the shares of the said company which was less than Rs.1 in June 2012 rose to Rs.26 in March 2013 in less than 9 months. The price of the shares was so manipulated that the long term
capital gain would be book profit on the sale of shares and thereafter the prices were manipulated to fluctuate so that interested beneficiary could book profit on market rate and can avail the benefit of long term/short term capital loss. Thereafter, again the share plunged to Rs.1. The whole modus operandi of this racket was unearthed upon a search and seizure operation under section 132 of the Act in the case of Shri Anil Agarwal. Shri Anil Agarwal is a director of M/s. Comfort Securities Ltd., a stock broker company registered with NSE, BSE, MCX, MCX-SX, NCDEX which is in the business of stock broking. Shri Anil Agarwal has been the operator and has been manipulating the prices of Rutron International Ltd. and he was also one of the directors of Rutron International Ltd also. In his
statement recorded on 12.04.2015 under section 132(4) of the Act he said that M/s. Comfort Securities Ltd. a stock broking firm has helped various persons in obtaining accommodation entries in the form of LTCG and STCG. He stated that he has provided such entries in respect of shares of various companies namely Splash Media Infra Ltd., First Financial Services Ltd., D.B. (International) Stock Brokers Ltd., Unisys Softwares &
Holdings Industries Ltd. for providing bogus LTCG or STCG. Thereafter, the AO issued a show cause notice to the assessee which was replied by the assessee vide letter dated 16.12.2017. Thereafter, the AO brushed aside the contentions of the assessee as not plausible and added the same under section 68 of the Act to the income of the assessee by framing assessment under section 143(3) of the Act read with section 147 vide order dated
19.12.17. The Ld. CIT(A) also affirmed the order of AO after considering the reply of the assessee and various contentions raised during the appellate proceedings.

7. The Ld. Counsel, at the outset, submitted that identical issue in the case of Meghraj Singh Shekhawat vs. DCIT in ITA Nos.443 & 444/JP/2017 A.Y. 2013-14 and 2014-15 has been decided by the co-ordinate bench of the Tribunal involving the same company M/S Rutron International Ltd. and with all identical facts holding that the order of the AO treating the LTCG as bogus and consequential addition to total income of the assessee is not correct and deleted the same. The Ld. AR prayed that following the same order the addition made in the case of the assessee by treating long term capital gain as bogus has to be deleted.

8. When the issue was confronted to the Ld. D.R. whether the decision rendered by the co-ordinate Jaipur bench of the Tribunal was delivered on the identical facts involving the shares of sales of Rutron International Ltd. from which the assessee derived LTCG ,the Ld. D.R. candidly admitted that the said issue also arose out of the same racket in which the assessee made capital gain by selling the share of Rutron International Ltd., however, the Ld. D.R. relied heavily on the order of authorities below and submitted that all these transactions were thoroughly investigated by the investigation wing of the department and found that the present assessee was beneficiary of such bogus long term capital gain and therefore prayed before the Bench that the appeal of the assessee should be dismissed.

9. We have heard the rival submissions of both the parties and perused the material on record including the decision of the co-ordinate bench of the Tribunal in ITA Nos.443 & 444/JP/2017 A.Y. 2013-14 and 2014-15 in the case of Meghraj Singh Shekhawat vs. DCIT. We find that the facts of the
assessee’s case are identical to the case as cited above. The relevant paras are reproduced as under:

2. Ground Nos. 1 to 5 are regarding the long term capital gain from sale of shares declared by the assessee and claimed as exempt income u/s 10(38) of the Act was treated by the AO as bogus and added the said amount to the total income of the assessee u/s 68 of the Act. The assessee is an individual and engaged in the business of retail sale of IMFL/Beer. A search u/s 132 of the Income Tax Act was conducted on 17.07.2013 in case of MRS Group of which the assessee belongs. In the Return of income filed in response to notice u/s 153A of the Act, the assessee declared total income Rs. 16,08,31,700/- including the income surrendered and declared by the assessee during the search and seizure action of Rs. 12,12,04,711/-
as undisclosed income earned from business and profession. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of Rs.1,32,56,113/- which is claimed as exempt u/s 10(38) of the Act on sale of shares of M/s Rutron International Ltd. The AO received information from Investigation Wing, Kolkata that during the search conducted u/s 132 of the Act on 12.04.2015 at the business premises of one Shri Anil Agarwal Group it was found that Shri Anil Agarwal isone of the promoters of M/s Rutron International Ltd. Further, it was unearth through search action that Shri Anil Agarwal through a number of private
limited shell companies and other penny stock companies was involved in providing bogus long term capital gain to customers for commission. Accordingly, the Assessing Officer issued a show cause notice date 03.03.2016. In response to the show cause notice the assessee filed his reply dated 15.03.2016 which has been reproduced by the AO at page 3 & 4 of the assessment order. The assessee given the details of the purchase and sale of shares of M/s Rutron International Ltd. and clarified that the shares were allotted to the assessee by the company as preferential shares allotments on payment through cheque. The shares were sold by the assessee from his D-mat account through the broker M/s Anand Rathi Share and Stock Brokers Ltd. and therefore, the assessee denied any involvement of availing the bogus of long term capital gain. The AO did not accept and explanation of the assessee and referred to the statement of Shri Anil Agarwal recorded by Investigation Wing Kolkata u/s 132(4) of the Act and held that since, Shri Anil Agarwal was involved in providing bogus long term capital gain in respect of the shares of the companies including M/s Rutron International Ltd., therefore, the transaction of the assessee showing the long term capital gain from sale of shares of M/s Rutron International Ltd. is bogus and consequently the AO made an addition of Rs. 1,32,56,113/- to the total income of the assessee u/s 68 of the Act. Aggrieved by the action of the AO the assessee filed the appeal before the ld. CIT(A) however, the ld. CIT(A) has confirmed the treatment of long term capital gain as bogus transaction and consequential addition made by the AO.

3. Before us, ld. AR of the assessee has submitted that the Assessing Officer has made this addition solely on the basis of the statement of Shri Anil Agarwal recorded statement u/s 132(4) by the Investigation Wing, Kolkata without any corroborative evidence to show that the assessee has converted its unaccounted income in the long term capital gain. He has further contended that even in the said statement recorded u/s 132(4) Shri Anil Agarwal has not mentioned any fact about providing bogus long term capital gain entry to the assessee or even he was a promoter of M.s Rutron International Ltd. The ld. AR has further submitted that the assessee specifically demanded the cross examine of Shri Anil Agarwal on whose
statement the AO has based his assessment order and made addition on account of bogus long term capital gain. Thus, in view of the decision of Hon’ble Supreme Court in case of CCE vs. Andaman timber Industries 127 DTR 241. The addition made by the AO is not sustainable. The ld. AR has submitted that the assessee was allotted 3,50,000/- equity shares by M/s Rutron International Ltd. on 01.03.2012 vide allotment letter dated 08.03.2012. The shares were allotted by the company at face value of Rs. 10/- each without charging any premium under preferential issue.He has referred to the bank statement of the assessee and submitted that the
assessee paid the purchase consideration/ share application money vide cheque on 29.02.2012 the payment made by the assessee is duly reflected in the back statement of the assessee. Therefore, the assessee purchased shares in preferential allotment of the company and against the purchase consideration paid by the assessee through cheque. He has also referred to the D-mat account of the assessee and submitted that the shares were dematerialized on 18.06.2012 and thereafter the shares were sold from 13.03.2013 onwards on various dates through M/s Anand Rathi Shares & Stock Brokers Ltd. The shares were sold by the assessee are reflected in the D-mat account of the assessee and the sale consideration was
directly credited to the bank account of the assessee. Therefore, the assessee has produced all the relevant evidence to show the allotment of shares, payment of consideration through cheque at the time of allotment of shares dematerialization of the shares and thereafter, sale of shares from the D-mat account. Hence, the transaction of purchase and sale of shares is genuine one as the assessee has proved the genuineness by producing the relevant record whereas the Assessing Officer has not produced any material or record to controvert the evidence produce by the assessee. Thus, ld. AR has submitted that the transaction of purchase and sale of shares is genuine and the long term capital gain arising from
purchase and sale of shares cannot be treated as bogus transaction.  ence, ld. AR has pleaded that the addition made by the AO be deleted and the claim of the assessee accepted. In support of his contention he has relied upon the Hon’ble jurisdiction High Court dated 11-09-2017 in case of CIT vs. Smt. Pooja Agrawal 385/2011 wherein the Hon’ble High Court has held that when the assessee furnished all supporting documents including the cheque, copy of contract note and D-mat account etc. then, the transaction entered into cannot be denied simply on the ground that in his statement the assessee denied made any transaction. Whereas in this case, the assessee never denied having these transactions but the AO has solely relied upon the statement of Shri Anil Agrawal which was recorded by
the Investigation Wing, Kolkata without giving an opportunity of cross examine to the assessee. The ld. AR has relied upon the decision of Hon’ble Pubjab and Haryana High Court dated 18.01.2018 in case of CIT vs. Prem Pal Gandhi in ITA No.95/2017. He has also relied upon the decision of the Coordinate Bench of this Tribunal dated 31.01.2018 in case of Pramod Jain & others vs. DCIT in ITA No.368/JP/2017 and submitted that in all these decisions when the assessee produced the supporting evidence to prove the genuineness of the transactions and the AO has failed to produce any counter evidence to disprove the evidence produce by the assessee it was held that the transactions cannot be treated as bogus merely on the basis of statement without any corroborating evidence brought by the Assessing Officer.

4. On the other hand, ld. DR has submitted that the assessee has shown a huge long term capital gain within a short period of one year from the sale of shares and therefore, as per the rule of preponderance of human probability the transaction of the assessee cannot be accepted as genuine and the onus is on the assessee to prove the same as how there is a spike in the price of the shares within such short duration. The surrounding circumstances clearly lead to only one possible conclusion that the assessee has manipulated the entire record and availed the bogus transaction of long term capital gain to convert his unaccounted income to
avoid tax through long term capital gain. He has relied upon the decision of Hon’ble Bombay High Court in case of Sanjay Bimalchand Jain vs. Pr. CIT 89 taxaman.com 196. The ld. DR has then referred to the finding of the AO as well as ld. CIT(A) and submitted that when Sh. Anil Agarwal has clearly admitted in the statement that through his company he is engaged in providing bogus long term capital gain to the clients and M/s Rutron International Ltd. is one of the company is whose share transferred by Shri Anil Agrawal. He has relied upon the orders of the authorities below.