TaxTMI 
TaxTMI 
2018 (9) TMI 416
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....disallow the claim of the assessee. 3. Brief facts of the case is that the assessee is an individual and had filed his return of income for the A.Y.2014-15, showing total income of Rs. 2,38,420/-. The case of the assessee was selected for scrutiny through CASS and accordingly AO issued notices u/s l43(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). The AO notes that in response to the said notices, the Ld. AR of the assessee appeared and filed required details and documents. During the course of assessment proceedings, the A.O. observed that the assessee had shown Long Term Capital Gain on sale of scrips of M/s. Esaar India Ltd., which were exempt u/s l0(38) of the Act. Further, it was noted by the AO that the earning in the said scrips has been reported as suspicious by Investigation Wing and accordingly the case of the assessee was selected for scrutiny. On the basis of documents submitted during the course of assessment proceedings and the data available on various stock market website in respect of the said scrip, the AO analysed the fundamentals, graphs and the price movement of the said scrip during the period under consideration. While an....
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....mpany for the quarter ended 3lst December 2012 (copy enclosed), the appellant observed that the company had reported a profit of Rs. 24.97 lacs as against a meagre profit of Rs. 0.34 lacs for quarter ended 3lst December 2011. Now having regard to the growth of the company and the future prospect, the appellant was of the view that the purchase of the 25000 shares of the said company at a price of Rs. 10.83 per share was a good bargain and accordingly purchased the shares of the said company for Rs. 2,70,750/-. Later on, the appellant sold the shares of the said company at a reasonable profit of Rs. 35.18 per share (Rs46.00 - 10.83) and thus made a gain of Rs. 8,78,675/-. However, the AO disbelieved the claim of LTCG and held it to be a bogus transaction and added back the entire amount of sale proceeds of Rs. 11 ,49,4251-[ Rs. 46 per share for 25000] as unexplained cash credit u/s 68 of the Act. It was pointed out to us by the Ld. AR that had there been an involvement of the appellant in such scam, then the appellant should have sold it a price of Rs. 67.95 per share (on 21.08.2014), being the highest price of which the shares of the said company was traded, so the theory of collus....
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....hat statement had no relevancy whatsoever to the case of the mill in question." The Ld. AR submitted that similar views have been taken in following cases:- * LAXMANBHAI S. PATEL V. CIT ITR NO. 41 OF 1997 * ALOK AGRAWAL V. DCIT, 67 TTJ 109 * CIT VS EASTERN COMMERCIAL ENTERPRISES 210 ITR 103 (CAL) * KISHINCHANDCHELLARAM VS CIT (1980) 125 ITR 0713 (SC) * CIT VS PRADEEP KR GUPTA 303 ITR 95 * CIT VS SMC SHARE BROKERS LTD 288 ITR 435 7. According to Ld. AR, in the absence of any material/evidences proving the involvement of the appellant in circular trading, it can be concluded that the additions made by the AO were merely on the basis of suspicion and surmise, which resulted from purported generalized information received from Investigation Wing. In this regard, ld AR placed reliance on following judicial pronouncements wherein it was stated that addition cannot be made merely on the basis of presumption, assumption and suspicion which cannot take the shape of proof:- 8. The Ld. AR drew our attention to the decision of Hon'ble Supreme Court in the case of K.P. Varghese v. Income Tax Officer (SC) (1981) 131 ITR 0597 wherein ....
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....* CIT VS SMC SHARE BROKERS LTD 288 ITR 435 12. In the aforesaid back ground, according to Ld. AR, it appears that the additions were made by the A.O, were stereotype in nature and were based on surmises and were not on the basis of material relating to the case of appellant. Therefore, in the aforesaid basic ground, it can be concluded that the additions made by the AO were merely on the basis of suspicion, which cannot take the shape of proof. In this regard we would again like to place reliance on the following cases:- 13. In the case of K.P. Varghese v. Income Tax Officer (SC) (1981) 131 ITR 0597 the Hon'ble Apex Court held that - "the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application....
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....s operandi which proved nothing of assessee's involvement in any scam and was of a generalized nature and nothing to do with the assessee. 18. The Ld. AR submitted that in the assessment order the AO has stated that he had enquired into the matter by issuing notice u/s 133(6) to BSE asking it to furnish the details of counter parties, their addresses, contact numbers and PAN. However, the AO had failed (i) to give a copy of the information BSE gave to AO pursuant to his notice, (ii) no material from BSE was pointed to draw adverse inference against the assessee, (iii) no material was based by AO to prove that the assessee was in any way involved in circular trading to rig the value of shares. The only thing the AO had done is reproduce the extract of general details received from BSE. Further, the AO was also in possession of statement of operators of counter party member who had accepted their role in managed and synchronized transactions. During the course of assessment proceedings the AO neither apprised the appellant of such information collected u/s 133(6) nor provided the copies of the same for rebuttal. Further, the copies of statement and an opportunity for cross examina....
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.... and purchase of the shares through a valid stock broker who was in existence at the relevant time with the stock exchange and this fact has not been doubted by the lower authorities. In view of the above we hold that the lower authorities had not brought on record sufficient reasons for disallowing the claim of the assessee. In this connection we rely in the case of CIT versus Carbo Industrial Holdings Limited reported in 116 taxman159 where the Hon'ble jurisdictional High court has held as under: "lf the share broker, even after issue of summons does not appear, for that reason, the claim of the assessee should not be denied, specially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied," Similarly we also find guidance and support from the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Emerald Commercial Ltd. reported in 120 taxman 282 whereby it was observed as under : "Business income-Business loss-Loss on sale of ....
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....t on the basis of suspicion surmises and conjectures, It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alpine Investments in ITA No. 620 of 2008 dated 26th August 2008 wherein the High court held as follows: "It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment k appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal ....
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.... lower authorities. In view of the above we hold that the lower authorities had not brought on record sufficient reasons by disallowing the claim of the assessee" 24. Reliance was also placed on the case of Manish Kumar Baid, Mahendra Kumar Baid (supra) wherein it has been held by the Tribunal that- "It is also a matter of record that the assessee has 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 to by the AO 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 bonafide and genuine and therefore the AO 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 Ld AR and findings given thereon would apply to the facts of the instant case. The Ld. DR was not able to furnish any contrary cases to this effect. Hence we h....
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.... transferred from one side to another, addition cannot be sustained. 26. The following judgments were also brought to our notice by the Ld. AR:- M/s. Classic Growers Ltd. vs CIT (ITA No. 129 of 2012) (Cal HC) :- In this case the A.O. 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 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 AO 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 ld AO was misplaced and not substantiated. CIT vs Shreyashi Ganguli (ITA No. (Cal HC) : 196 of 2012) 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....
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....elied on the decision of the Ld CIT(A) and the AO and urged before the bench not to interfere with the order of the Ld CIT (A). 29. We have heard the rival submissions and perused the records. We note that in the present case, the assessee had purchased 25000 shares of M/s. Essar India Private Limited on 22.03.2012 from a recognized stock broker M/s. R. L. Agarwala Capital Market Ltd. through the BSE. These shares were held in the de-mat account of the assessee placed at pages 13 and 14 of paper book and ultimately these shares were sold through M/s. R. L. Agarwala Capital Market Ltd. through the BSE and on such sale, Security Transaction Tax was duly paid. Payments were duly received in the bank account of the assessee. The transactions were all through a registered broker and through BSE since the scrips of M/s. Essar India Pvt. Ltd. was a listed company in BSE backed by a contract note (page 2 and 8&9 of the paper book) and shares were credited in the de-mat accounts (page 13 and 14 of the paper book) and duly reflected in the books of account. In the light of these evidences on record we are of the opinion that the purchase and sale of shares per-se cannot be held to be bad.....
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....uineness of the transactions which has been disbelieved on the species plea that production of these documents strengthens the suspicious transaction of bogus transaction cannot be accepted at all. The ld CIT(A) ought not to have brushed aside these documents without pointing out any defects and therefore the impugned action of ld CIT(A) cannot be countenanced. Moreover the AO has referred in his assessment order the name of M/s. Kailash Auto and M/s. Unno Industries and also statements of Shri L.K. Agarwal and Shri Goutam Bose and Shri S. Dokania. However these persons statements have neither been reproduced in the assessment order nor the assessee given a copy of the statements to rebut. So the action of both AO and ld CIT(A) referring to statements which were purportedly recorded under oath by the Investigation Wing cannot be made the basis for drawing adverse inference against the assessee. Thus the action of AO to refer to certain purported statements of the three individuals without establishing any nexus with the assessee can at best mislead or create suspicion and reference to irrelevant material itself makes the order bad. Not only that the AO has not even bothered to give....
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....oker is as follows: Name : R L Agarwala Capital Markets Ltd. PAN : AABCR8213Q Address: Martin Burn House, 2nd flr, suite 207, 1, R. N. Mukherjee Road, Kolkata - 1 Contact no. (033) 2248-2458 iii) The Contract Notes for sale of aforesaid shares was produced before us and CIT(A)/AO (Page 8 & 9 of paper book) iv) The De mat Statement reflecting the debit of shares from the account is enclosed. (page 13 & 14 of paper book) v) The Ledger from the broker for my transactions in shares of Essar India Ltd. is enclosed(Pages 10 and 11 of paper book) vi) The relevant copy of Bank Statement reflecting the receipts from such sale was produced before us and CIT(A)/AO. vii) The funds on sale proceeds were utilized for purchase of 10,000 shares of Mangalore Chemicals & Fertilizers Ltd., in IPO application of Power Grid Ltd. and other investment in shares. 33. We find force in the contentions of the ld. AR that the AO and CIT(A) was not justified in rejecting the claim of the assessee on the basis of theory of suspicious transactions surrounding circumstance, human conduct and preponderance of probability without bringing on....
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....r a profit of Rs. 36/- per share) and for that the assessee cannot be blamed unless there was any material/evidence to prove that the assessee or any one on his behalf has rigged the stock price. It should be noted that the Stock Exchange and SEBI are the statutory authorities appointed by the Govt. of India to ensure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the company in question. In absence of any evidence to back the conclusion of AO/CIT(A), it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transitions. It is also pertinent to note that the assessee has purchased the stocks through BSE and through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Bombay Stock Exchange, and is supported by valid contract notes as per law; and in similar case, the Hon'ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that "on the....
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....re found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus nor the AO had issued any notice to the brokers for confirmation. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows : "It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materi....