TaxTMI 
TaxTMI 
2018 (9) TMI 1233
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....ficer on account of unexplained cash credit U/s 68 of the Income Tax Act, 1961 (in short the Act) as against the long term capital gain on sale of shares exempt U/s 10(38) of the Act. The assessee is an individual and derives income from salary, house property, capital gains and income from other sources. The assessee filed his return of income on 31/7/2014 declaring total income of Rs. 17,97,890/- after claiming long term capital gain on sale of shares as exempt U/s 10(38) of the Act. During the course of assessment proceedings, the Assessing Officer proposed to treat the transaction of long term capital gain as accommodation in nature and not genuine. The Assessing Officer has referred to the investigation conducted by the department, therefore, Directorate of Investigation (DIT), Kolkata wherein an organized racket of generating bogus long term capital gain was unearth. The Assessing Officer discussed the modus operandi adopted by the operators was to make beneficiary to buy some shares of a pre-determined penny stock company controlled by them. The shares are transferred to the beneficiaries at a very nominal price in off-market transactions, sometimes through preferential allo....
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.... behalf of the statements recorded by the DDIT(Inv.), Kolkata whereas there was no allegation or any admission in those statements that the assessee was one of the beneficiaries of the alleged transaction of accommodation entries. The assessee also relied upon the various decisions. The ld. CIT(A) on consideration of the evidence produced in support of the claim as well as the various judicial precedents on the issue, hold that the share transaction resulting in capital gain is valid transaction and subject to the provisions of Section 10(38) of the Act. Accordingly, the ld. CIT(A) has deleted the addition made by the Assessing Officer. 4. Before us, the ld DR has submitted that the assessee has claimed to have purchased three lacs shares of Careful Advisory Ltd. @ Rs. 1 per share from a broker in off-market transaction and four lacs shares of Panchshul Marketing Ltd. @ Rs. 1 per share from the same broker in a similar off-market transaction, thus it is clear that the assessee has claimed to have acquired these shares as penny stocks and within the short span of time, the assessee has claimed long term capital gain of Rs. 2,60,17,995/- as against the purchase price of Rs. 7,00,0....
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.... in respect of Kailash Auto Finance Limited suspending the trading in the said script till the investigation was pending. The ld DR has relied upon the order of the Assessing Officer. 5. On the other hand, the ld AR of the assessee has submitted that the assessee purchased three lacs shares of Careful Projects Advisory Ltd. (CPAL) @ Rs. 1 per share from M/s Sanskriti Vincom Pvt. Ltd. on 12/3/2012 vide share purchase bill, which is placed at page No. 5 of the paper book. He has referred to the bank statement of the assessee to show that the payment of Rs. 3.00 lacs was made from the bank account of the assessee on 14/3/2012. Similarly, the assessee purchased four lacs shares of M/s Panchshul Marketing Ltd. (PML) @ Rs. 1 per share from M/s Sanskriti Vincom Pvt. Ltd. on 12/7/2012 vide purchase bill, which is placed at page No. 8 of the paper book. The payments for purchase consideration was also made from the bank account on 05/7/2012. The ld AR has referred to the bank statement of the assessee and submitted that in both the cases, the payment was made through the bank account at the time of purchase of these shares, therefore, when the assessee has produced purchase bills alongwi....
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....ully tried to take support of the various case laws though based on peculiar facts available in those cases only but ignoring the one favoring the assessee. Admittedly, the assessee had furnished all possible evidences i.e. copy of De-mat account, bank statement, and share transfer form and share allotment certificate, ledger of share broker account to establish the genuineness of purchase and sale transaction of shares. There appears no valid reason for entertaining any suspicion or doubt by the AO and the adverse inference so drawn and the suspicion so raised, are completely unfounded. The payment of Rs. 3,00,000/- was sent through NEFT of ICICI Bank which is evident from Bank Statements of assessee and payment of Rs. 4,00,000/- was also sent through NEFT of ICICI Bank as on dated 05.07.2012 which is evident from the Bank Statements of the assessee. These shares were sold in thirteen parts over a period of 5 Months viz 62,500 shares on 29.07.2013 for Rs. 23,56,250/- through registered stock broker Raghunandan Capital Pvt. Ltd. The Broker M/s Raghunandan Capital Pvt. Ltd. is a registered broker having Broker Member ID: 6112. The brokers while selling, had also charged STT Rs. 26,7....
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.... not discharge his duties but rather blindly relied upon other's information. It is an admitted fact that the AO had strongly relied upon the statements of the various persons namely Shri Anil Khemka, Devesh Upadhyay, Pankaj Agarwal and various other persons and unfortunately, despite using the same against the assessee, the assessee was never confronted and even the statements of these persons were not fully reproduced in the impugned order, what to talk of giving an opportunity of cross examination. In the aforesaid letter dated 30.11.2016, even the name of these persons were not disclosed by the AO nor the assessee was confronted the requisite details through order sheet entries. Thus, without knowing that the statements of third parties were being used against the assessee, requiring an opportunity of cross examination by the assessee giving specific name from the AO, was an impossibility. Yet however, the assessee in its reply dated 26.12.2016 (AO. Pg. 11) specifically submitted that in the absence of cross examination of the key persons no adverse inference can be drawn. But still, the AO, in its rebuttal pg. 14 Para 9, completely ignored such a request for opportunity of cro....
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....urchase price was artificial suppressed by the parties with intention to maximize the capital gain through the modus operandi of bringing the assessee unaccounted income in the shape of long term capital gain exempt U/s 10(38) of the Act. The Assessing Officer has given much emphasis on the report of DDIT(inv.), Kolkata and some statements were recorded during the investigation proceedings by Kolkata wing wherein three persons who were brokers namely Shri Anil Khemka, Shri Devesh Upadhyay and Shri Pankaj Agarwal were examined by the DDIT(Inv.), Kolkata and in their statements recorded U/s 131(1) and 133A of the Act, they admitted their indulgence in providing accommodation entries of bogus capital gain in some of the scripts including the scripts of M/s Kailash Auto Finance Ltd. However, we find that in the entire report of investigation Wing of which the relevant part is reproduced by the Assessing Officer as well as the statements of these persons, there is no mention either of the assessee or M/s Sanskriti Vincom Pvt. Ltd. through whom the assessee purchased these shares. Thus, even if three persons are considered to have indulged in the transaction of providing accommodation en....
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.... the shares of M/s Kailash Auto Finance Ltd against the consideration. Thus, the allotment of shares by M/s Kailash Auto Finance Ltd. in pursuant to the scheme of amalgamation established the fact that the assessee was already holding the equal number of shares in the erstwhile companies namely M/s Careful Projects Advisory Ltd. and M/s Panchshul Marketing Ltd. Thus the holding of shares by the assessee and allotment of shares of M/s Kailash Auto Finance Ltd. are the material facts emerging from the records, which cannot be disputed. The allotment of shares of M/s Kailash Auto Finance Ltd. itself is a proof of holding of shares by the assessee in the erstwhile companies which got amalgamated into new entity. Hence, all these facts go to prove beyond any doubt that the assessee was holding the shares in question and the payment of consideration was duly made through banking channel, which is also not in dispute. The Assessing Officer has treated the transaction as bogus only on the basis of the statements recorded by the Investigation Wing, Kolkata, however, even if those statements are considered and taken into account, it cannot lead to the conclusion or establish the fact that th....
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....the appellant has submitted as under; 1. He has an in depth knowledge and strong understanding of various intricacies of financial market. The Appellant has been investing in the share market based on various reports, analysis and studies made by experts in the field, which are published in newspapers, trade magazines etc. as also on the basis of knowledge gained through acquaintances. 2. During the period April 2013 to April 2016, the Appellant had traded in several other securities as well through the stock exchange mechanism. In or about February 2012, the Appellant came to know from Mr. Anuj Goyal that shares of Careful Projects Advisory Ltd. ("CPAL") were available with one Sanskriti Vincom Pvt. Ltd. Mr. Anuj Goyal also impressed upon the Appellant that CPAL was engaged in to the business of investment in various companies and were holding shares of various companies. The Appellant was informed that these investment made by CPAL would grow and could yield good profits to the Appellant. In view of the same the Appellant thought it fit and presumed it to be a good investment opportunity and decided to purchase shares of CPAL. Accordingly in March, 2012, the App....
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....evoked the suspension of the said entities including KAFL. Merely sharp increase in share price cannot be the reason for treating sale/purchase of such shares as dubious in nature. I have also considered various reasons given by the A.O to treat the share transaction as sham transaction. Merely, basing the judgment on the basis of statement given by 3rd parties without corroborating it with evidences on record is neither tenable nor reasonable inference. The A.O has not brought on record any evidence that any cash amount were transferred , from the appellant to the share brokers/intermediaries in lieu of money received through cheque by way of sale of shares at an exorbitant price. It is also my considered view that purchase of shares through off-market is not an illegal transaction. In this regard, Hon'ble ITAT at Mumbai in case of ACIT Vs Shri Ravindrakumar Toshiwal in ITA nos. 5302/Mum/2008 has held that:- We find that the issue is covered by the decision of the Tribunal in the case of Mukesh R. Marolia wherein it has been held that off market transaction is not a unlawful activity and there is no relevance in seeking details of share transaction from ....
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....re genuine and the short term capital gain of Rs. 98,56,872/- has been earned from purchases and sales of shares of Konark Commercial limited and Limtux Investment Ltd. Investigation revealed that the entire share transactions were bogus and mere accommodation entries obtained from an entry provider Sh P K Agarwal from Kolkata. The said facts were revealed during search carried out by the Investigation wins, Jaipur in the case o f B C Purohit Group. Therefore, in the above mentioned judgments by the jurisdictional Rajasthan High Court, the Hon'ble Court has upheld the decision taken by the ITAT/CIT(A) that if the assessee files the copy of contract note regarding purchase and sale of shares, assessee accounts with the brokers, copy of depository a/c or demat a/c, payments and receipts are made through a/c payee cheques and the transactions are routed through recognized stock exchange and no evidence that the cash has gone back to appellant's account then the share transactions cannot be denied as bogus and not genuine. 5.5 Therefore, taking into account all factual matrix, judicial rulings including jurisdictional Rajasthan High Court judgments, it is my considere....
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....onal Ltd. against the consideration paid by the assessee through cheque. Then the role of any intermediately particular of Shri Anil Agrawal is said allotment does not appear from any of the record. Even as per the statement as reproduced by the Assessing Officer in the assessment order Shri Anil Agrawal has stated that he is having business nexus with the companies including M/s Rutron International Ltd. The department put a question about the association with as many as 13 companies and in response to that he has accepted that he is having business nexus with these companies including M/s Rutron International Ltd. The nature of service was also explained by Shri Anil Agrawal as the consultancy services. For ready reference we quote question No. 4 and 5 and answer, thereto in the statement of Shri Anil Agarwal as reproduced as under:- Q 4. Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the following companies or have ever had any business transactions with the companies as mentioned below: 1. First Financial Services Ltd. (FFSL) 2. Splash Media and Infra Ltd. ( SPMIL) 3. D B (International) stock Brokers Ltd. ( DBSBL) ....
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....ated to know some of the directors of these companies including M/s Rutron International Ltd. Hence, from this relevant part of the statement of Shri Anil Agrawal it cannot be inferred that he has provided the bogus long term capital gain from purchase and shares of equity shares of M/s Rutron International Ltd. much less the specific transaction of preferential issue allotment of shares by the company itself to the assessee. Further, though he has explained the modus oprendi of providing bogus long term capital gain entries in the equity shares however, when the transaction was not routed through Shri Anil Agrawal and the shares were allotted directly by the company to the assessee at par on face value then the same cannot be considered as a penny stock transactions. The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore,....
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....ecord. The assessee purchases 800 equity shares M/s Gravity Barter Ltd. for a consideration of Rs. 4 lacs the assessee has produced the purchase bill of the shares purchase from M/s Winall Vinimay Pvt. Ltd. which shows that the assessee purchase 800 equity shares having face value of Rs. 10/- each M/s Gravity Barter Pvt. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500 per share itself shows that it was not a transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order o....
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....td the assessee was holding these shares and prior to that the assessee was holding the shares of M/s Gravity Barter Ltd. on exchange of the same the shares of M/s Oasis Cine Communication Ltd. were issued to the assessee. The Assessing Officer has doubted the genuineness of the transactions however, once the holding of shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or bro....
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....y the assessee holding of shares cannot be doubted when the assessee has produced all the relevant record of issuing of allotment of shares, payment of share application money through bank, share certificate and demat account showing the shares credited in the demat account of the assessee on dematerialization. The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon'ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is a....
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....fer the opportunity to the assessee to cross examine Shri Deepak Patwari. Further, the AO asked the assessee to produce the Principal Officers of the M/s Gravity Barter Ltd. and M/s Paridhi Properties Ltd. However, in our view if the Assessing Officer wanted to examine the principal Officers of those companies he was having the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: "5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 6. According to us, not allowing the....
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....tions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 8. 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 Notice." 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 vs. ACIT (supra) had the occasion to consider the addition made by the AO 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 whol....
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....f 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." Therefore, 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 Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) 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 CIT(A) 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 th....
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....of the order of settlement commission was submitted. The AO 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 thematerial facts available on record does not help much. The AO 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 Purohi. 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 AO is not approved. The AO is therefore, directed to accept claim of short term capital ....
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..... We find that the ld. CIT(A) has also referred to SEBI enquiry against the M/s Anand Rathi Share and Stock Brokers Ltd. However, we note that the said enquiry was regarding financial irregularities and use of fund belonging to the clients for the purpose other than, the purchase of shares on behalf of the clients. Therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain. The decisions replied upon the ld. DR in case of Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of the present case as the said decision is in respect penny stock purchase by the assessee from a persons who was found to be indulged in providing bogus capital gain entries whereas in the case of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account. Therefore, on analyzing of the facts as well as the evid....
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....of the Act treating long term capital gain as accommodation entries for bogus claim of exempt income and consequently the Assessing Officer has also made an addition on account of expenditure of Rs. 10,68,720/- being unexplained commission expenses on such transaction of accommodation entries. 8. Since this is a consequential issue and the ld. CIT(A) has decided and same in para 6.3 as under: "6.3 I have considered the order passed by the A.O. and submissions filed by the appellant. This ground of appeal is the offshoot of the Ground of appeal No. 2, which has been adjudicated in favour of the assessee. Hence there is no basis left for the addition of Rs. 10,68,720/- as possible commission paid to brokers/intermediaries to arrange for the accommodation entry. Accordingly, the addition of Rs. 10,68,720/- is deleted. And the appellant's ground of appeal on this issue is allowed." Being a consequential issue to the issue involved in ground No. 1 of the appeal, this ground has been adjudicated in favour of the assessee and against the revenue. 9. In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 29/08/2018. ============= D....