Long-term capital gain on sale of shares could not be treated as bogus simply on the basis of some reports of the Investigation Wing

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Long-term capital gain on sale of shares could not be treated as bogus simply on the basis of some reports of the Investigation Wing

Overview:

Where transactions of purchase and sale of shares were supported and evidenced by Bills, Contract Notes, Demat statements and bank statements, etc., and the transactions were accepted by AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties, therefore, resulting long-term capital gain was to be allowed as exempt under section 10(38).

Assessee claimed exemption under section 10(38) in respect of long-term capital gains from sale of shares of M/s KAFL. Price movement of scrip in the span of 18 months raised doubts in the mind of AO. Further, AO suspected issue of bonus shares in the unrealistic ratio of 1:55. Also AO relying on report of investigation wing treated long-term capital gains as bogus and made addition under section 68.

It was held that transactions in relation to purchase and sale of shares were supported and evidenced by Bill, Contract Notes, Demat statements and bank statements, etc., and the transactions were accepted by AO in earlier years, the same therefore, could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. Therefore, addition made by AO was not justified.

Decision: In assessee’s favour.

IN THE ITAT, KOLKATA BENCH

  1. SUDHAKAR REDDY, A.M. & A. T. VARKEY, J.M.

Sanjiv Shroff v. ACIT

ITA Nos. 1197, 1198 & 1198/Kol/2018

2 January, 2019

Appellant by: M. D. Shah, Authorised Representative

Respondent by: Sankar Halder, Addl. Commissioner, Sr. Departmental Representative

ORDER

A.T. Varkey, J.M.

The three appeals i.e. ITA Nos. 1197, 1054 & 1198/Kol/2018 of the Assessee’s belonging to the same family, arise out of the independent orders of the learned Commissioner (Appeals)-10, Kolkata for assessment year 2014-15 dated 19-4-2018. As the issues involved are identical in all the appeals, they are taken up together and disposed off by this common order for the sake of convenience. Therefore, the appeal of Shri Sanjiv Shroff in ITA No. 1197/Kol/2018 are taken up for adjudication and the decision rendered thereon would apply to all the appeals also, except with variance in figures.

  1. Though the assessee had raised several grounds of appeal the main issue is as to whether on the facts and circumstances of the case, the learned Commissioner (Appeals) was justified in upholding the addition made by the assessing officer under section 68 of the Act in respect of sale proceeds of shares of M/s. Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee’s claim of Long Term Capital Gains (LTCG) on sale of those shares.
  2. The brief facts of the issue as has been recorded by the assessing officer in the Assessment Order are that the assessee claimed long term capital gains from sale of shares of M/s. Kailash Auto Finance Limited (KAFL). The assessing officer noted that the assessee had purchased 1,00,000 shares of M/s. Careful Projects Advisory Limited (CPAL) at a face value of Rs. 1 each in for a total consideration of Rs. 1,00,000 which company (CPAL) later got amalgamated with M/s. KAFL by virtue of an order of Hon’ble Allahabad High Court and in pursuance to such amalgamation, the assessee was allotted 1,00,000 shares of KAFL of the face value of Rs. 1 each. The said shares were later sold through a broker named M/s. Ratnabali Capital Markets Ltd. on different dates falling within the previous year 2013-14 corresponding to the assessment year 2014-15 at a price of Rs. 37,60,405., which according to assessee, resulted in Long Term Capital Gains and so the assessee claimed exemption under section 10(38) of the Act.
  3. However, the assessing officer did not agree with the assessee’s claim of LTCG and exemption thereof claimed by the assessee. According to assessing officer, it is unbelievable that the assessee can make a fantastic gain in a span of 18 months. According to assessing officer, the price movement of the scrip in the span of 18 months raised doubts in his mind and that profit earned by the assessee were beyond human probabilities. The assessing officer noticed that the company, M/s. CPAL, was incorporated on 18-9-2010 with authorized and paid up share capital of Rs. 1 lakh. The company increased its authorized share capital to Rs. 34.50 lakhs and thereafter issued 330155 shares of the face value of Rs. 10 each at the premium of Rs. 590 to different entities. The assessing officer also observed that during the financial year 2011-12, M/s. CPAL increased its authorised share capital to Rs. 29 crores and then the shares of Rs. 10 each were split into 1:10 i.e. each shares of Rs. 10 into shares of Re.1 each. The said company CPAL thereafter issued bonus shares to the existing equity shareholders in the ratio of 1:55. The assessing officer suspected the issue of bonus shares in the unrealistic ratio of 1:55. He was of the opinion that the probable reasons were with a view to provide large amount of LTCG in the hands of beneficiaries after amalgamating the said company with KAFL. The assessing officer concluded that CPAL was incorporated with a dubious plan and premeditated arrangement and artifice to increase number of shares therein through sham and non genuine transactions of its shares which resulted in fetching exorbitant and unrealistic considerations in the scheme of amalgamation. The assessing officer referred to the statement of Shri Sunil Dokania recorded under section 131 of the Act by the Investigation wing on 12-6-2015, wherein, Shri Dokania has explained the modus operandi of providing of LTCG in the scrip of KAFL. He stated that by way of amalgamation of CPAL with KAFL, the beneficiaries of LTCG got higher number of shares of KAFL as against shares of CPAL. Mr. Dokania, in the aforesaid statement, stated before the investigation wing that he had got equal amount of cash from the beneficiaries, deposited the same to various undisclosed proprietorship concerns, and finally transferred the same to bogus/shell companies, by layering through various accounts, who had ultimately purchased the shares sold by the beneficiaries. The assessing officer has also relied upon another statement of Shri Sunil Dokania recorded under section 131 by the Investigation wing on 6-3-2013, in the case of Rashmi Group of Kolkata ; Statement of Shri Bidyoot Sarkar recorded on 8-4-2015 under section 133A in the case of Religare Securities Limited; Statement of Shri Narendra Balasia recorded on oath under section 133A in the case of SMC Global Securities Limited ; Statement of Shri Pradip Jain recorded on 31-3-2015 under section 131 and the two Statements of Shri Amit Dalmia recorded by the Investigation wing on 31-3-2015 and 5-6-2015. The statements were annexed to the Assessment Order to come to a conclusion that the assessee was one of the beneficiaries of the transactions in shares of KAFL which resulted in bogus claim of exempt LTCG.
  4. The assessing officer, on the basis of movement of price of KAFL quoted in Bombay Stock Exchange during the period of September, 2013 to January, 2014 (the period of sale of shares of KAFL by the assessee), found that the price of shares had increased by 267%. The assessing officer concluded that while Sensex showed almost no progress, price of shares of KAFL moved phenomenally. The assessing officer also referred to the financials of KAFL during the Financial years 2011-12 to 2015-16 and concluded that Earnings per share (EPS) during that period was either nil or negative but the value of shares was highly inflated.

The assessing officer observed that the prices of shares of KAFL were rigged by the entities connected to KAFL.

  1. The assessing officer referred to three separate orders passed by SEBI dated 29-3-2016, 15-6-2016 and 31-10-2016 in support of his adverse conclusions drawn against the assessee that several entities related/connected to KAFL rigged the prices by 230% during the period of January, 2013 to June, 2013 (Patch-1), created artificial demand and thereafter provided exit to the beneficiaries during the period of July 2013 to November, 2014 (Patch-2). The said orders passed by SEBI contained list of related/connected parties of KAFL and also the list of beneficiaries. Some of these were restrained from accessing the securities market and buying, selling or dealing in securities. The assessing officer concluded that the in depth analysis done by SEBI in the three orders is direct evidence against the assessee to hold that the prices of KAFL were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL. The assessing officer further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one.
  2. The assessing officer also made enquiries from the Bombay Stock Exchange as to the counter party members who bought the shares of KAFL sold by the assessee through his share broker viz. M/s. Ashika Stock Broking Limited. The assessing officer found that the buyers of the shares had weak financials and therefore he doubted the genuineness of the transactions.

And the summons issued to the said parties came back un-served and/or no response was received thereon. The learned assessing officer referred to his test check analysis of one of the buyer of shares sold by the assessee viz. M/s. Rajwanshi Promoters (P) Ltd. and found that the source of funds for making investment by M/s. Rajwanshi Promoters (P) Ltd. was the funds received from different entities and observed that the ultimate source was cash deposited in two bank accounts at 4th or 5th layers. On the basis of the said test check analysis, the assessing officer doubted the genuineness of purchases transactions done by all the buyers in relation to shares sold by the assessee. The assessing officer observed that the cash trail analysis prepared on sample basis strengthens the suspicions over the genuineness of the buyers of shares and further suspected that the unaccounted cash of the assessee was layered into the bank account of the exit providers.

  1. The assessing officer relying on the various decisions viz. Hersh Win Chaddha v. DCIT (ITA Nos. 3088 to 3098 & 3104/Del/2005),Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) : 1995 TaxPub(DT) 1173 (SC)Durga Prasad More v. CIT, Mcdowell & Co. V. CTO, CIT v. P. Mohankala) observed that tax liabilities can be assessed by revenue authorities on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/evidence available on record. The assessing officer ultimately concluded that in such clandestine operations and transactions, it is impossible to have direct evidence or demonstrative proof of every move.
  2. The assessing officer concluded that the assessee’s transactions resulting in LTCG on sale of shares of KAFL were bogus and that the assessee ploughed back his unaccounted money in the books of accounts which is assessable under section 68 of the Act.
  3. On first appeal, the learned Commissioner (Appeals) dismissed the grounds raised by the assessee against his claim of exemption under section 10(38) of the Act and he also confirmed the additions made by the assessing officer under section 68 of the Act. Aggrieved, the assessee is in appeal before us.
  4. We have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing it was brought to our notice that this Tribunal in the following cases have decided that the scrips of M/s. KAFL are not bogus and held that the LTCG claim of the assessee need to be allowed :–

(i) Manish Kumar Baid v. ACIT, ITA Nos. 1236& 1237/Kol/2017, dt. 18-8-2017

(ii) Rukmini Devi Manpria v. DCIT, ITA No. 1724/Kol/2017, dt. 24-10-2018

(iii) Jagmohan Agarwal v. ACIT, ITA No. 604/Kol/2018, dt. 5-9-2018.

  1. The learned Departmental Representative for the Revenue vehemently opposed the contentions of the assessee and took us through the assessing officer’s order and learned Commissioner (Appeals) order and submitted that scrips of M/s. KAFL was artificially rigged to provide LTCG to the assessee which cannot be allowed and supported the impugned order and relied on the order of Hon’ble Bombay High Court in the case of Binod Chand Jainin Tax Appeal No. 18 of 2017 and so he does not want us to interfere with the impugned order.
  2. We note that similar issue arose in Manish Kumar Baid, (supra) wherein, the Tribunal allowed the claim of assessee in respect of LTCG from sale of scrips of M/s. KAFL has held as under :–

“6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the learned Authorised Representative that the learned assessing officer was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgment of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (supra) for this proposition. The various facets of the arguments of the learned Authorised Representative supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the learned Authorised Representative are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon’ble High Court. The learned assessing officer ought not to have questioned the validity of the amalgamation scheme approved by the Hon’ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross –examination. Moroever, it is also pertinent to note that the assessee and/or the stock broker Ashita Stock Broking Ltd. name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the learned assessing officer against the assessee, which in our considered opinion, has no legs to stand in the eyes of law.

We find that the learned Departmental Representative could not controvert the arguments of the learned Authorised Representative with contrary material evidences on record and merely relied on the orders of the lower authorities apart from placing the copy of SEBI’s interim order supra. We find that the SEBI’s orders relied on by the learned assessing officer and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities/promoters/brokers/entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20-12-2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in order to have a good return on his investment. We find that the assessee and/or the broker Ashita Stock Broking Ltd. was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI’s order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and/or Ashita Stock Broking Ltd.’s name is not reflected at all. Hence the allegation that the assessee and/or Ashita Stock Broking Ltd. getting involved in price rigging of KAFL shares fails. We also find that even the SEBI’s order heavily relied upon by the learned assessing officer clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the learned assessing officer to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bona fide and genuine and therefore the learned assessing officer was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon’ble Jurisdictional High Court relied upon by the learned Authorised Representative and findings given thereon would apply to the facts of the instant case. The learned Departmental Representative was not able to furnish any contrary cases to this effect. Hence we hold that the learned assessing officer was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee under section 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee.”

  1. Coming back to the facts of the instant case before us, we note that the assessee had purchased 1,00,000 Equity shares of M/s. Careful Projects Advisory Limited on 13-2-2012 which shares were credited to its de mat account on 24-2-2012. The assessee had made payment for purchase of above shares by cheque no. 825565 dated 20-2-2012 drawn on Andhra Bank, Kolkata Main Branch from his current account no.007011011003846. The shares were purchased from M/s. Needful Vincom Private Limited, off market. Later M/s. Careful Projects Advisory Limited was amalgamated with M/s. Kailash Auto Finance Limited by an Order, dt. 21-5-2013under section 391, 394 of the Companies Act, 1956 of Hon’ble High Court. By virtue of this amalgamation, the assessee was allotted 1,00,000 equity shares of M/s. Kailash Auto Finance Limited in lieu of 1,00,000 equity shares of M/s. Careful Projects Advisory Limited, as per order of the Hon’ble High Court. In view of this order, shares of M/s. Careful Projects Advisory Limited got extinguished and shares of M/s. Kailash Auto Finance Limited were allotted and were credited to assessee’s de mat account on 13-7-2013. Copy of their share bill dated 13-2-2012 is seen placed in the paper book. We note that copy of de mat account which was opened since 20-6-2011 till date was also produced before the authorities below. We note that shares of M/s. Kailash Auto Finance were listed at BSE. Copy of De mat statement clearly reflecting debit of such shares from the account is found attached. The above shares were debited to the assessee’s de mat account as under :–
Date of Debit Number of shares
25-7-2013 23600
25-7-2013 26400
7-8-2013 25000
13-8-2013 25000
1,00,000

Copy of Bank Statement of Andhra Bank account highlighting the credit receipts received from the sale consideration is seen placed in the paper book. Fund flow statement for the period 1-7-2013 to 31-8-2013 is seen reflecting the receipt of fund and utilization of same. It was pointed out that funds were mainly used for repayment of loan taken by the assessee earlier and for purchase of shares of M/s. A.S. Chemotex (P) Ltd. We note that the assessee had not claimed any of exempted long term capital gains under section 10(38) of the Act in assessment year 2012-13 and assessment year 2013-14.

  1. We note that the assessee had filed the following documents to support his claim of LT CG on sale of shares of M/s. KAFL.
  2. Copy of Purchase Bill dated 13-2-2012 reflecting the purchase of shares of Careful Projects Advisory Ltd. from Needful Vincom (P) Ltd. (paper book page 4).
  3. Copy of Bank Statement reflecting the debit transaction of the amount of Rs. 1,00,000 paid to Needful Vincom for the purchase of shares via cheque no. 825565 on 20-2-2012. (Paper book page 5).
  4. Copy of proof of DEMAT account held with Ratnabali Capital Markets (P) Ltd. bearing Client ID: 10002180 and DP ID: 303639. (Paper book page 6-7).

4 Copy of statement of DEMAT account evidencing the credit of shares of Careful Projects Advisory Ltd. on February 2012. (Paper book page 8),

  1. Copy of statement of DEMAT account evidencing the credit of shares of Kailash Auto Finance Ltd. by virtue of scheme of amalgamation on 13-7-2013. (paper book page 9).
  2. Copy of statement of DEMAT account evidencing the debit of shares of Kailash Auto Finance Ltd. on 25-7-2013, 25-7-2013, 7-8-2013 and 13-8-2013. (Paper book page 9).
  3. Copy of the order approving the Scheme of Amalgamation passed by the Hon’ble Allahabad High Court in relation to the merger of Kailash Auto Finance Ltd. and Careful Projects Advisory Ltd. (Paper book page 10-39).
  4. Copy of contract notes evidencing the sale of shares Kailash Auto Finance Ltd. (Paper book page 40-42).
  5. Copy of Bill/Transaction Statement evidencing the sale of shares of Kailash Auto Finance Ltd. (paper book page 43-46).
  6. Copy of the bank statement reflecting the transactions of sale of shares of Kailash Auto Finance Ltd. (paper book page 47-48).
  7. We note that shares of M/s. KAFL were sold by assessee through recognized broker in a recognized Bombay Stock Exchange. The details of such sale and contract note have been submitted before Assessing officer/learned Commissioner (Appeals). We take note that when the transactions happened in the Stock exchange, the seller who sells his shares on the stock exchange does not know who purchases shares. According to our knowledge, the shares are sold and bought in an electronic mode on the computers by the brokers and there is also no direct contact at any level even between the brokers. We note that as and when any shares are offered for sale in the stock exchange platform, any one of the thousands of brokers registered with the stock exchange is at liberty to purchase it. As far as our understanding, the selling broker does not even know who the purchasing broker is. This is how the SEBI keeps a strict control over the transactions taking place in recognized stock exchanges. Unless there is a evidence to show that there is a breach in the aforesaid process which fact has been unearthed by meticulous investigation, we are of the opinion that the unscrupulous actions of few players exploiting the loopholes of the Stock Exchange cannot be the basis to paint the entire sale/purchase of a scrip like that of M/s. KAFL as bogus without bringing out adverse material specifically against the assessee.
  8. The fact of holding the shares of M/s. KAFL in the D-mat account cannot be disputed. Further, the assessing officer has not even disputed the existence of the Dmat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The assessing officer has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of Shri Sunil Dokani, Shri Bidyoot Saral, Shri Narendra Basin and Shri Amit Dokani recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee.
  9. The assessee has requested the cross examination of Shri Sunil Dokani, Shri Bidyoot Saral, Shri Narendra Basin and Shri Amit Dokani which was not provided to the assessee by the assessing officer. Thus, in view of the decision of Hon’ble Supreme Court in case of CCE v. AndamanTimber Industries (2015) 127 DTR 241 (SC) : 2015 TaxPub(DT) 5186 (SC)the assessment based on statement without giving an opportunity to assessee to cross examine the maker of the adverse statements relied on by the assessing officer, is not sustainable in law. We find that the statement cannot be used by the assessing officer without giving an opportunity to cross examination of Shri Sunil Dokani, Shri Bidyoot Saral, Shri Narendra Basin and Shri Amit Dokani.

Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries v. ACIT (supra) had the occasion to consider the addition made by the assessing officer on the basis of suspicion and surmises and observed in par 46 as under :–

“46. In situations like this case, one may fall into realm of ‘preponderance of probability’ where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of ‘twin branding’ and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by Departmental RepresentativeI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee-company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts.

Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee.

Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.”

  1. Since, when the assessing officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon’ble Rajasthan High Court dated 11-09-2017in case of CIT v. Smt. Pooja Agrawal (ITA no 385/2011)has upheld the finding of the Tribunal on this issue in para 12 as under :–

“12. However, counsel for the respondent has taken us to the order of Commissioner (Appeals) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under :–

“Contention of the Authorised Representative is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc.

Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee’s account with P.K. Agarwal & co. share broker, company’s master details from registrar of companies, Kolkata were filed.

Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants’s account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The assessing officer has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The assessing officer has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant’s case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of Deputy Commissioner, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The Authorised Representative made submission before the assessing officer that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The assessing officer has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The assessing officer has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine.

Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) (ITA-385/2011) made by the appellant before the assessing officer is not approved. The assessing officer is therefore, directed to accept claim of short term capital gain as shown by the appellant.”

In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the assessing officer is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the assessing officer on this account.”

  1. We note that the sale of shares of M/s. KAFL which was dematerlized in Demat account has taken place through recognised stock exchange and assessee received money through banking channel. So, assessee has explained the nature and source of the money with supporting documents and thus has discharged the onus casted upon him by producing the relevant documents mentioned in para 15 (supra), accordingly, the question of treating the said gain as unexplained cash credit under section 68 of the Act cannot arise unless the assessing officer is able to find fault/infirmity with the same. We note that the source of the receipt of the amount has been explained and the transaction in respect of which the said amount has been received by assessee has not been cancelled by the stock exchange/SEBI. So, it is difficult to countenance the action of Assessing officer/learned Commissioner (Appeals) in the aforesaid facts and circumstances explained above.
  2. Even assuming that the brokers may have done some manipulation then also the assessee cannot be held liable for the illegal action of the brokers when the entire transactions have been carried out through banking channels duly recorded in the Demat accounts with a Government depository and traded on the stock exchange unless specific evidence emerges that the assessee was in hand in gloves with the broker for committing the unscrupulous activity to launder his own money in the guise of LTCG is brought on record by the assessing officer.
  3. There is also nothing on record which could suggest that the assessee gave his own cash and got cheque from the alleged brokers/buyers. The assessment is based upon some third parties statements recorded behind the back of the assessee and the assessee has not been allowed to cross examine those persons, so the statements even if adverse against the assessee cannot be relied upon by the assessing officer to draw adverse inference against the assessee in the light of the documents to substantiate the claim of LTCG, which has not been found fault with by the assessing officer.
  4. Let us look at certain judicial decisions on similar facts :–
  5. The case of the assessee’s is similar to the decision of Hon’ble Bombay High Court, Nagpur Bench in CIT v. Smt. Jamnadevi Agrawal & Ors. dated 23-9-2010reported in (2010) 328 ITR 656 (Bom-HC) : 2010 TaxPub(DT) 2265 (Bom-HC) wherein it was held that :–

“The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary ITA Nos. 93 to 99/RPR/2014 & C.O. Nos. 12 to 18/RPR/2014. assessment year 2004-05 10 produced to establish the genuineness of the claim.

From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine.

Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the, bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers’ bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.–Asstt. CIT v. Kamal Kumar S. Agrawal (Indl.) & Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818affirmed; Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) : 1995 TaxPub(DT) 1173 (SC)distinguished.”

  1. The Hon’ble High Court of Rajasthan in CIT v. Smt. Pushpa Malpanireported in (2011) 242 CTR (Raj.) 559 : 2011 TaxPub(DT) 0630 (Raj-HC)dismissed the appeal of department observing ‘Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. Commissioner (Appeals) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31-3-2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003.

Therefore, ‘the present appeal does not raise any question of law, much less any substantial question of law.”

  1. The Hon’ble High Court of Punjab and Haryana in the case of Anupam Kapoor (2008) 299 ITR 179 (P&H-HC) : 2008 TaxPub(DT) 500 (P&H-HC)has held as under :–

“The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28-4-1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant assessing officer as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the assessing officer, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the assessing officer merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the assessing officer could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the assessing officer.–Therefore, the assessing officer could not have added income, which was rightly deleted by the Commissioner (Appeals) as well as the Tribunal.

It is settled law that suspicion, howsoever strong cannot take the place of legal proof.

Consequently, no question of law, much less a substantial question of law, arises for adjudication.-C. Vasantlal & Co. v. CIT (1962) 45 ITR 206 (SC) : 1962 TaxPub(DT) 279 (SC), M.O. Thomakutty v. CIT (1958) 34 ITR 501 (Ker)) and Mukand Singh v. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. v. CIT (1959) 37 ITR 271 (SC) : 1959 TaxPub(DT) 184 (SC) Applied; Jaspal Singh v. CIT (2006) 205 CTR (P & H) 624 distinguished”

  1. The Co-ordinate Bench of Ahmedabad in ITA Nos. 501 & 502/Ahd/2016 had the occasion to consider a similar issue which was wherein the assessment was framed on the strength of the statement of a broker. The relevant part reads as under :–

“14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing officer/Commissioner (Appeals). The Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal :–

“6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders.”

  1. The Hon’ble Apex Court held as under :–

“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination.

Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, Order, dt. 17-3-2005was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause.

We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.”

  1. On the strength of the aforementioned decision of the Hon’ble Supreme Court, the assessment order has to be quashed.
  2. Even on facts of the case, the orders of the authorities below cannot be accepted.

There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.

  1. In the light of the decisions of the Hon’ble Supreme Court in the case of Andaman Timber Industries(supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.
  2. Accordingly, we direct the assessing officer to treat the gains arising out of the sale of shares under the head capital gains-“Short Term” or “Long Term” as the case may be. The other grievance of the assessee becomes infructuous.”
  3. The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the assessing officer in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani v. ITOin ITA No. 19/Kol/2014, dt. 2-12-2016 and the decision by Hon’ble Calcutta High court in PCIT v. BLB Cables & Conductors (P) Ltd. in ITAT No. 78 of 2017, dt. 19-6-2018 wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The following judgments of Hon’ble Jurisdictional High Court :–

(i) The Hon’ble Calcutta High Court in the case of Principal CIT v. M/S. Blb Cables And Conductors; ITAT No. 78 of 2017, GA No. 747 of 2017; dt. 19-6-2018, had upheld the order of the Tribunal by observing as follows :–

“4. We have heard both the side and perused the materials available on record. The learned Authorised Representative submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the learned Authorised Representative submitted that the order of the assessing officer is silent about the date from which the broker was expelled.

There is no law that the off market transactions should be informed to stock exchange.

All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The learned Authorised Representative has also submitted the Income Tax Return, ledger copy, letter to assessing officer land PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The learned Authorised Representative produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the learned Departmental Representative relied in the order of the lower authorities.

4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the assessing officer held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the learned Commissioner (Appeals). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation.

In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence.”

(ii) M/s. Classic Growers Ltd. v. CIT (ITA No. 129 of 2012) (Cal HC)-In this case the learned assessing officer found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble High Court held that the opinion of the assessing officer that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the learned assessing officer but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the assessing officer was misplaced and not substantiated.

(iii) CIT v. Lakshmangarh Estate & Trading Co. Limited (2013) 40 taxmann.com 439 (Cal)-In this case the Hon’ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive.

(iv) CIT v. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC)-In this case the Hon’ble Calcutta High Court held that the assessing officer doubted the transactions since the selling broker was subjected to SEBI’s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed.

(v) CIT v. Rungta Properties (P) Ltd. (ITA No. 105 of 2016) (Cal HC)-In this case the Hon’ble Calcutta High Court affirmed the decision of this tribunal, wherein, the tribunal allowed the appeal of the assessee where the assessing officer did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the assessing officer disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the assessing officer did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the assessing officer’s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed.

(vi) CIT v. Andaman Timbers Industries Limited (ITA No. 721 of 2008) (Cal HC)-In this case the Hon’ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the assessing officer failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.

(vii) CIT v. Bhagwati Prasad Agarwal inITA No. 22 of 2009, dt. 29-4-2009)-In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the assessing officer, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat.

He therefore held that the transactions were bogus. The Hon’ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court.

  1. We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the learned assessing officer in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the learned Authorised Representative, in addition to the aforesaid judgments, has referred to and relied on the following cases :–

(i) Baijnath Agarwal v. ACIT-(2010) 40 SOT 475 (Agra-Trib) : 2010 TaxPub(DT) 1810 (Agra-Trib)

(ii) ITO v. Bibi Rani Bansal-(2011) 44 SOT 500 (Agra-Trib) : 2011 TaxPub(DT) 1393 (Agra-Trib)

(iii) ITO v. Ashok Kumar Bansal-ITA No. 289/Agra/2009 (Agra ITAT)

(iv) ACIT v. Amita Agarwal & Others-ITA Nos. 247/(Kol)/of 2011 (Kol ITAT)

(v) Rita Devi & Ors. v. DCIT-IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)

(vi) Surya Prakash Toshniwal v. ITO-ITA No. 1213/Kol/2016 (Kol ITAT)

(vii) Sunita Jain v. ITO-ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT)

(viii) Ms. Farrah Marker v. ITO-ITA No. 3801/Mum/2011 (Mumbai ITAT)

(ix) Anil Nandkishore Goyal v. ACIT-ITA Nos. 1256/PN/2012 (Pune ITAT)

(x) CIT v. Sudeep Goenka-(2013) 29 taxmann.com 402 (Allahabad HC)

(xi) CIT v. Udit Narain Agarwal-(2013) 29 taxmann.com 76 (Allahabad HC)

(xii) CIT v. Jamnadevi Agarwal (2012) 20 taxmann.com 529 (Bombay HC)

(xiii) CIT v. Himani M. Vakil-(2014) 41 taxmann.com 425 (Gujarat HC)

(xiv) CIT v. Maheshchandra G. Vakil-(2013) 40 taxmann.com 326 (Gujarat HC)

(xv) CIT v. Sumitra Devi (2014) 49 Taxmann.com 37 (Rajasthan HC)

(xvi) Ganeshmull Bijay Singh Baid HUF v. DCIT-ITA Nos. 544/Kol/2013 (Kolkata ITAT)

(xvii) Meena Devi Gupta & Others v. ACIT-ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT)

(xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT)

(xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT)

  1. The learned Authorised Representative also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgment of Hon’ble Supreme Court in the case of Krishnanand Agnihotri v. The State of Madhya Pradesh (1977) 1 SCC 816 (SC). In this case the Hon’ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon’ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The learned Authorised Representative submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks.

(i) ITO v. Ashok Kumar Bansal-ITA No. 289/Agr/2009 (Agra ITAT)

(ii) ACIT v. J.C. Agarwal HUF-ITYA No. 32/Agr/2007 (Agra ITAT)

  1. Moreover it was submitted before us by learned Authorised Representative that the assessing officer was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The learned Authorised Representative referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the assessing officer was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :–

(i) ITO v. Ashok Kumar Bansal-ITA No. 289/Agr/2009 (Agra ITAT)

(ii) ACIT v. Amita Agarwal & Others–ITA Nos. 247/(Kol)/of 2011 (Kol ITAT)

(iii) Lalit Mohan Jalan (HUF) v. ACIT-ITA No. 693/Kol/2009 (Kol ITAT)

(iv) Mukesh R. Marolia v. Addl. CIT-(2006) 6 SOT 247 (Mum-Trib) : 2006 TaxPub(DT) 1108 (Mum-Trib)

  1. We note that the learned Departmental Representative had heavily relied upon the decision of the Hon’ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the learned Departmental Representative, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the assessing officer and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the learned Departmental Representative, the dispute was whether the profit earned on sale of shares was capital gains or business profit.
  2. It is clear from the above that the facts of the case of the assessee are identical with the facts in the cases wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s. KAFL. We, therefore, respectfully following the same, and set aside the order of learned Commissioner (Appeals) and direct the assessing officer not to treat the long term capital as bogus and delete the consequential addition.
  3. The next issue in confirming the addition of Rs. 1,83,020 as unexplained expenditure towards commission charges of sale of such shares by the operator. We have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the assessing officer. Consequently the addition of Rs. 1,83,020 is hereby directed to be deleted. We accordingly hold that the issue is allowed in favour of the assessee.
  4. In the result, all the appeals of the assessee are allowed.

 

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