TaxTMI 
TaxTMI 
2018 (6) TMI 1451
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.... the Act. 2.1. That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term 'capital asset' was not includible in total income of the assessee in view of section 10(38) of the Act. 2.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the claim of sale of shares and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced. 2.3 That the learned Commissioner of Income Tax (Appeals) has confirmed the above addition and denied exemption without confronting the material/investigation to appellant and also providing cross examination of the parties on whose stateme....
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....me Tax (Appeals) may kindly be deleted and appeal of the appellant be allowed." 2. I have heard Ld. Representatives of both the parties and perused the findings of the authorities below. In all the grounds of appeal, the assessee challenged the addition of Rs. 19,51,357/- u/s 68 of the Income Tax Act, 1961 (in short "Act"). 3. Brief facts of the case are that return declaring income of Rs. 5,31,370/- was filed on 18.11.2014. In this return the assessee had claimed long term capital gains of Rs. 19,39,557/- as exempt u/s 10(38) of the IT Act. The Assessing Officer referred to the investigation carried out by the Directorate of Investigation, Kolkata to unearth the organized racket of generating bogus entries of long term capital gains which is exempt from tax. After discussing the modus of such racket of generating of bogus entries, the Assessing Officer pointed out that the Directorate of Investigation, Kolkata investigated transactions in 84 penny stock shares quoted on BSE and examined on oath a large number of brokers, promoters and entry operators. As a result of this investigations, large number of individuals had been identified who had taken such accommodation entries ....
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....he submissions of the assessee, the Assessing Officer held that the transaction was a accommodation entry and in this regard observed as under:- "9.1 The assessee sold the shares on 30.07.2013 & 31.07.2013 (500+5500=6000) through the broker M/s Indus Portfolio Pvt. Ltd, for a total sale consideration of Rs. 19,53,372/- for which the shares were dematerialized only on 11.06.2013. It is thus evident that just a few days prior to the date of sale, these shares are dematerialized though these are said to have been purchased on 22.11.2011. The transaction entered into by the assessee does not authenticate long term capital gain in view of the fact that these physical shares were purchased through off market and these shares were dematerialized only just a few days prior to the date of sale. 10. The assessee has shown credit of Rs. 19,51,357/- in his bank account as sale proceeds of shares. As is evident from the investigation the actual source of this credit is the unaccounted cash of the assessee. The assessee was asked to explain the source of this credit. The explanation offered that it is sale proceeds of shares are found to be not only unsatisfactory but false. Th....
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.... Officer referred to all the aforesaid facts and held that LTCG amounting to Rs. 19,39,357/- was unaccounted income of the assessee and added the same to the total income of the assessee u/s 68 of the IT Act. The Assessing Officer further held that the tax on these additions would be charged as per section 115BBE of the IT Act. 4. The assessee challenged the addition before Ld.CIT(A) and filed a written submission which is reproduced in the appellate order which reads as under:- 1. "While assessing the income of the appellant, Ld. AO completely ignored the facts of the case and the documents/evidences filed by the appellant. Appellant purchased shares, get the shares dematerialized, sold the shares on recognized stock exchange, paid STT and received amount through banking channel from the broker. Copy of bills of purchase of shares; copy of Share certificates, copy of share transfer form, copy of bank statement, copy of Demat account, and copy of account from the broker M/s Indus Portfolio P. Ltd are enclosed herewith. 2. Ld. AD has mentioned several persons in his assessment order including Sh. Anil Khemka, Sh. Sanjay Vohra, Bidyoot Sarkar and Sh. Nikhil Jain ....
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.... back only from the date of sale. In this regard, it is to submit that there is no law which prohibits the purchase of shares in cash. Appellant filed copy of bills of purchase, copy of share certificates and transfer forms etc. before Ld. AO and no adverse inference could be drawn only because the shares were purchased in cash. Regarding Demat of shares, it is to submit that it is the option of the buyer of shares to keep the shares either in Demat form or in paper form. Merely because the shares were get Demat by the appellant at a later stage, no adverse inference could be drawn. 7. Ld. AO has no evidence in his favour to prove that the transaction of purchase and sales of shares is bogus and he is proceeding only on suspicion, conjectures and surmises. Ld. AO has failed to prove any material on record which proves that the transaction on the Recognised Stock Exchange is manipulated and bogus. 8. Increase and decrease in market rates of shares on stock exchange always based on market forces and are determined on the basis of so many factors. It is not within the power of appellant to manipulate the rates of shares on stock exchange. Merely because there is, a s....
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...., Ward-27(4), New Delhi. ITO, Ward-27(4), New Delhi has no jurisdiction over the case of the appellant and hence notice issued was without jurisdiction and invalid. In view of above submission, it is prayed that all the additions made may kindly be deleted & the appeal of the appellant may kindly be allowed & oblige." 5. Ld.CIT(A) considering the explanation of the assessee and material on record, not only confirmed the addition of Rs. 19,39,357/- but also enhanced the same addition to 19,51,357/-. Thus, the appeal of the assessee has been dismissed with enhancement. The findings of Ld.CIT(A) in para 3.5 to 3.18 is reproduced as under:- 3.5. "I have carefully considered the appellant's submissions. Before going to the merits of the issue at hand it may be relevant to look into the general modus operandi adopted by the persons who indulge in converting their unaccounted cash to accounted form through the route of capital gains. With the exemption reduction in tax on capital gains on shares, there is rampant practice of routing the unaccounted cash in the form of long term capital gains and claiming the same as exempt/ concessional tax rate. The general modus....
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....the provisions of Section 40A(3), it was held that- "In interpreting a taxing statute, the court cannot be oblivious of the proliferation of black money which is under. circulation in our country." 3.7 It may now be relevant to refer to the various facts which emerge from the assessment order-and the submission of the appellant which are as under:- i) The appellant purchased 10,000 shares of M/s Turbo Tech Ltd for an amount of Rs. 20,000/-. ii) The shares were purchased in off market transaction from M/s Shree Ji Broking Pvt Ltd. iii) The shares were purchased in the name of the Appellant on 22.11.2011. iv) Payment for these shares was claimed to have been made on 24.11.2011 by cash i.e. two days after the shares were purchased. v) The shares were dematerialised just before the sale of shares. vi) The shares were sold on in July 2013 for an amount of Rs. 19,53,372/-. 3.8 Further, from the details gathered by the AO during the course of assessment proceedings following facts emerge:- i) During the course of proceedings u/s 131(1) of the IT Act before the Investigation Wing Sh. Anil Kumar Khemka....
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....tment is not within the realm of human probability. In these circumstances, it is evident that the transaction was as an arranged affair between the appellant and the accommodation entries providers and this fact has been duly admitted by Sh. Anil Kumar Khemka and Nikhil Jain referred to above. From the facts discussed above it is evident that M?s Turbo Tech Ltd was being used for the purpose of providing entry of long term capital gains by the entry providers and the transaction of sale and purchase of shares M/s Turbo Tech Ltd was not genuine transaction. 3.10 From the facts on record it is also evident that the appellant is not a regular investor in shares. Hence, it is quite surprising as to how she earned a phenomenal return of almost 50 times within a short span of period which is extremely unusual. This being the case, it is apparent that the appellant has entered into a sham transaction with the full knowledge of it, so as to convert unaccounted money into accounted money in the guise of capital gains. 3.11 The apparent is true until and unless it is disproved. Here in the instant case, the Managing Director and other Director Shri Nikhil Jain & Shri Anil ....
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....ord with the test of human probabilities, transactions have been held to be non-genuine. It is highly improbable that share price of a non descript company can go up by almost 50 times, in a short span of time. The taxing authorities are not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Mere receipt by cheque does not render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine. Similar view has been held by the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of Balbir Chand Maini V/s CIT 340 ITR 161 (P&H) 247 CTR 468 (P&H) and the Case of Som Nath Maini V/s CIT 306 ITR 484 (P&H). 3.14 Reference in this regard may also be made to the following case laws.- I. Sanjay Bimal Chand Jain L/h of Shanti Devi Bimal Chand Jain V/s CIT ITA No. 18/2017 (Mumbai High Court Nagpur Bench) II. Ratnakar M. Pujari V/s ITD ITA No. 995/Mum/2012 (res) dated 03/08/....
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.... in evidence against the assessee and relied upon the decision of the Hon'ble Supreme Court in the case of Kishan Chand Chela Ram 125 ITR 713 (SC). He has submitted that for claiming exemption u/s 10(38) of the Act, the assessee shall have to prove twin conditions i.e. the income arise from the transfer of long term capital asset and being equity share in a company where the transfer of sale of such equity share is entered into on or after the date of which Chapter-VII of the Finance Act, 2004 comes into force and such transaction is chargeable to security transaction tax under that Chapter. In the case of the assessee, both twin conditions are satisfied. He has filed copy of the shares certificate with transfer form, copy of debit note issued by Shreeji Broking (P) Ltd., copy of cash receipt of Shreeji Broking (P) Ltd., copy of ledger account of Indus Portfolio (P) Ltd., copy of form for evidence for payment of securities transaction tax on transaction entered in a recognized stock exchange and copy of the bank statement of the assessee in the Paper Book. He has further submitted that on identical facts, ITAT SMC Bench, Delhi in the case of Meenu Goel vs ITO in ITA No.6235/Del/201....
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....r regarding the modus operandi of bogus LTCG scheme but failed to substantiate how the assessee fell in the purview of the same without bringing any material on record and proving that the assesssee was directly involved in the so called bogus transaction. I further note that the addition in dispute made by the AO and upheld by the Ld. CIT(A) u/s 68 as unexplained credit instead of long term capital gain as claimed by the assessee, however, the source identity and genuineness of the transaction having been established by documentary evidences and there is no case for making addition u/s 68 of the Act, hence, the same deserve to be deleted. I note that in most of the case laws of the Hon'ble High Courts referred by the Ld. DR the reason on the basis of addition was confirmed was that the assessee had not tendered cogent evidence with regard to share transaction, however, in the present the case assessee has submitted all the documents / evidences, therefore, the case laws relied by the Ld. DR are based on distinguished facts and circumstances, hence, the said case laws are not applicable in the present case. However, in my considered opinion, the issue in dispute is squarely covered....
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....s. 12.59 lacs has been worked out ignoring the fact that the assessee himself in his reply to the AO had tried to explain the source of the receipts of Rs. 12,59,000/- instead of challenging the working out of the said figure by the AO? 3. The first three questions of law raised in this appeal are covered against the appellant by an order and judgment of a Division Bench of this Court dated 16.02.2017 in ITA-18-2017 titled as The Pr. Commissioner of Income Tax (Central), Ludhiana vs. Sh. Hitesh Gandhi, Bhatti Colony, Chandigarh Road, Nawanshahar. 4. The issue in short is this : The assessee purchased shares of a company during the assessment year 2006-07 at Rs. 11/- and sold the same in the assessment year 2008-09 at Rs. 400/- per share. In the above case, namely, ITA 18- 2017 also the assessee had purchased and sold the shares in the same assessment years. The AO in both the cases added the appreciation to the assessees' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee's income from undisclosed sources. In ITA-18-2017 also the CIT(Appeals) and the Tribunal held that the AO had not produced....
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....tered into genuine transaction of purchase of share which were later on sold through the broker on recognized stock exchange after payment of STT. The claim of the assessee for sale of shares has been supported by the documentary evidences which have not been rebutted by the authorities below. Whatever inquiry was conducted in the cases of other parties and statement recorded of several persons namely Sh. Anil Khemka, Sh. Sanjay Vohra and Sh. Bidyoot Sarkar as referred in the assessment order and the report of the Investigation Wing were not confronted to the assessee and above statements were also not subject to cross- examination on behalf of the assessee. Therefore, such evidences cannot be read in evidence against the assessee. The order of the SEBI was also not confronted to the assessee. AO did not mention any such fact in assessment order. More so in those reports and statements, the name of the assessee has not been referred to. Ld. Counsel for the assessee, therefore, rightly contended that the twin conditions of section 10(38) of the Act have been satisfied in the case of the assessee. The assessee has been able to prove that she has entered into the genuine transaction o....