TaxTMI 
TaxTMI 
2017 (10) TMI 522
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.... for the Asst Year 2014-15. As the issues involved are identical in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience. The facts in the case of Manish Kumar Baid are taken up for adjudication and the dicision rendered thereon would apply with equal force to Mahendra Kumar Baid also, except with variance figures. 2. Thought the assesee had raised several grounds of appeal, the following common issues are involved in both the appeals and the questions raised thereon the reframed as under :- 1. Whether on the facts and circumstances of the case, the Id CIT A was justified in upholding the addition made by the Id AO u/s 68 of the Act in respect of sale proceeds of shares of 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. Whether on facts and circumstances of the case Id CIT A was justified in upholding the action of the ID AO in treating the transactions in shares of kailash Auto Finance Limited (KAFL) resulting in long Term Capital Gain as bogus and thereupon making ....
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....5 shares of the fact value Rs. 10 each at the premium of Rs. 590 to different entities. The Id AO also observed that during the FY 2011.12, CPAL increased its authorized share capital to Rs. 29 crores and them 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 Id AO, considering the weak operating profits of CPAL., suspected the issue of bonus shares in the unrealistic ratio of 1:55. He held 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. 3.3 The Id AO further observed 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. While arriving at the aforesaid conclusions, the Id AO also doubled the scheme of amalgamation. 3.4 The Id AO referred to the statement of Shri Sunil Dokania recorded u/....
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....2013 June, 2013 (Parth-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 parities 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 Id AO concluded that the indepth 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 Id AO 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. 3.7 The Id AO 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 shares broker viz. Ashika Stock Broking Limited. The Id AO found that the buyers of the shares had weak financials and therefore he doubted the genuineness of the transactions. The summons issued to the said parties cam....
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.... the assessee to prove to genuineness of the transaction relating to LTCG on sale of shares of KAFL. The documentary included the following. (i) Purchase Bill for purchase of 2,40,000 shares of CPAL from M/s Brijdhara mercantile Pvt. Ltd. On 20.12.2011 falling in the previous year relevant to the Assessment Year 2012.13. (ii) Bank Statement showing payment of the purchase consideration of shares of CAPL to Brijdhara. (iii) Balance Sheet of the Assessee for the FY 2011.12 to 2012-13 to show that the investment in the shares of CAPL was duly disclosed. (iv) demat Statement with United Bank of India, a Depository Participant (DP) showing the aforesaid shares of of CPAL in the account of the assesee. (v) The letter dated 8^th June. 2013 of KAFL informing the assessee that the CPAL was merged with KAFL by virtue of Court order and the assessee was allited shares of KAFL as against the shares of CPAL in the ratio of 1:1. (vi) The Demat statement of the assessee with United Bank of India showing receipt of Shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of Ashika Stock Broking Ltd. Share broker though whom th....
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....Revenue, he fairly agreed that the assessee's name and/or the name of Ashika Stock Broking Ltd. Don not appealr in the list annexed to various orders of the SEBI including final Order dated 15^th June 2016 referred to in the impugned assessment order. 5.3 The Id AR also brought our attention to the enquiry report made by Pr. Director of Income Tax (Investigation). Kolkata in the matter of transactions of KAFL. The Id AO relied on the statements of different persons including Sri Sunil Kumar dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The Id AR has shown that the list of beneficiaries provided by the these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd. 5.4 The Id AR, on the other hand, relied on the ad interim exparte order dated 29^th March, 2016 passed by SEBI in favour of assessee. He drew our attention to Para 24 of the said order wherein SEBI found that some innocent and gullible i....
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....s beneficiaries are allotted the shares at nominal price and the price of the shares rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entries are paid by the unaccounted money of the beneficiaries in cash. As a relult unaccounted income ploughed back in the file of individuals and HUFs in the from the bogus LTCG without paying income tax on it. In process the bogus Short Term Capital loss is also booked by the entitles who wants to reach reduce their Taxability. 5.8 The Id AR submitted that there is not allegation by Shri Sunil Dokania and/or the Id AO that the assessee ever approached Shri Dokania and/or any other person whatsoever, to approach for such bogus LTCG. Therefore the Id AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The Id. AR also referred to the statements of various other persons annexed with the Assessment order to show that one of the said persons names the assessee to have been benefitted by them in respect of LTCG claimed by the assesee. The Id AR submitted that the Id AO was unjustified in drawing an adverse inference agai....
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.... surmises and hearsay. It is trite law that the suspicion howsoever strong cannot partakethe character of legal evidence. Reference was made to the judgement of Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC). The Id AR submitted that the entire case of the revenue hinges upon the presumption that the assessee has ploughed back his own unaccounted money in the from of bogus LTCG. 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 the assessee had brought back his unaccounted income in the from of LTCG. The Id AR referred the judgement of Special Bench of Mumbai Tribunal in the case of GTC industries Ltd. Vs. ACIT [2017] 164 ITD 1 (Mumbai Trib.) (SB) The Tribunal observed as under. 46. ......Ultimately the entire case of Revenue upon the presumption that assesee 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....
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....okerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The Id AR referred to the following judgement of jurisdictional High Court:- (i) M/s Classic Grawers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal IIC)- In this case the Id AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale shares were stage managed. The Hon'ble High Court held that the opinion of the Id AO 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 Id AO but he miserable failed have been the view expressed by the Id AO but he miserable failed to substantiate that. The High Court held the transaction were at the prevailing pirce and therefore the suspicion of the Id AO was misplaced and not substantiated. (ii) 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 basic of a suspicion howsoever strong it is not possible to record any finding of fact, As a mat....
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....nal High Court, Affirmed the decision of the Tribunal wherein it was found that the chain of transaction 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 assesee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 5.12. The Id AR submitted before us that where the purchase and sale transaction are supported and evidenced by Bills, Contract Notes. Demat statements and bank statements etc., the transactions of purchase of shares were accepted by the Id 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. In support of the aforesaid submissions, the Id AR in addition to the aforesaid judgements, has referred to and relied on the following case :- (i) Baijnath Agarwal vs. ACIT -[2010] 40 SOT 475 (Agra (tm) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (tm) (iii) ITO v....
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.... Bansal- ITA No. 289/Agr/2009(Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF- ITA No 32/Agr/2007 (Agra ITAT) 5.14. The Id AR further submitted that the Id was not justified in taking an adverse view against the assessee in the ground of abnormal price rise of the shares and price rigging. It was submitted that there is not allegation in orders of SEBI and/or the enquiry report of the Investigation. Wing to the effect that the assessee and/or broker was a party to the price rigging or manipulation of price in BSE. The Id AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the Id AO 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 vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amta Agarwal & Others - ITA Nos. 2478(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum). 5.15. The Id AR ....
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....sessing the sale proceeds of shares of KAFL as unexplained cash credit under section 68 if the Act. 5.17 The Id AR submitted that on the facts and circumstances of the case and on the basis of incontrovertible evidences produced by the assessee, the Id AO was not justified in concluding that the assessee's transactions relating to LTCG on sale of shares of KAIL were bogus, The Id CIT (A) was also not justified in dismissing the appeal without properly appreciating the facts of the case and the evidences produced by the assessee's claim of exemption of LTCG on sale of shares of KAFL was not distinguished on facts and/or on law by the Id CIT(A), On the other hand, he assessee's transactions of LTCG were bogus ignoring all legal evidences furnished by the assesseee in support of the genuineness of the transactions resulting in LTCG. The Id AR prayed that the order of the ID CIT (A) be set aside and the exemption under section 10(38) of the Act be allowed to the assessee. 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 Id AR that the Id AO was not justified in rejecting the claim of the assess....
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....ssessee 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 roder to have a good retun 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 Id AO 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 not 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....
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....on in terms of section 14A(2) pf the Act read with Rule 8D(1) of the Rules, having regard to the accounts of the assessee. The assessee submitted before the Id AO that did not incur any expenditure in relation to exempt income except demat expenses which the assessee did not claim any deduction. The Id AR placing reliance on the judgement of Hon'ble Calcutta High Court in the case of CIT vs. REI Agro Ltd. in ITAT No. 161 of 2013 submitted that the disallowance made by the Id AO be directed to be delated in the absence of satisfaction recorded by the Id AO with reference to the books of accounts examined by him. The Id DR vehemently relied on the orders of the lower authorities and argued that for the year under appeal, the provisions contained in Rule 8D(2) of the Rules are very much applicable and hence the some had been rightly worked out by the Id AO. 8.1. We have considered that rival submissions. We find that the Id AO did not record any satisfaction in terms of section 14a of the Act. We find that the Id AO did not record any satisfaction in terms of section 14A of the Act, We also find that Demat expenses were not claimed by the assessee in the return filed. We hold that ....