TaxTMI 
TaxTMI 
2018 (10) TMI 1432
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....f Rs. 5,22,940/-. It derived income from commodity trading, long term capital gains on account of sale of shares , dividend income on investments in shares and received interest income from non-convertible debentures and deposits. The assessee claimed exempt income u/s 10(38) of the Act on account of long term capital gains (LTCG in short) of Rs. 95,20,445/- on sale of listed equity shares of Sharp Trading & Finance Ltd (STFL in short) which was also subjected to Securities Transaction Tax (STT) and transactions routed through recognized stock exchange. The ld AO observed that the assessee applied for 10000 shares of Rs. 10 each of M/s Trinity Tradelink Ltd totaling to Rs. 1,00,000/- paid directly to the company by the assessee. The 10000 shares were allotted to the assessee on 10.2.2012. The payment made by the assessee at the time of application of shares was Rs. 1,00,000/- vide Account Payee Cheque No. 107169 dated 19.1.2012 drawn on Punjab National Bank, Brabourne Road Branch and the cheque got cleared in assessee's bank on 25.1.2012. The source of this fund was out of redemption of units of Reliance Money Manager Fund. On allotment of 10000 shares to assessee vide allotment ad....
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....ng market prices in the stock exchange in the open market on which the assessee does not have any control. He argued that there is no evidence brought on record by the revenue to prove that the concerned scrip was involved in artificial price rigging at the behest and connivance of assessee together with his broker and the stock exchange and some entry operators. He argued that the Hon'ble Punjab & Haryana High Court (Chandigarh Bench) in the case of PCIT vs Sh Hitesh Gandhi in ITA No. 18 of 2017 dated 16.2.2017 on the aspect of huge increase in share sale price had observed in the similar circumstances and decided in favour of the assessee. He placed reliance on the coordinate bench decision of Mumbai Tribunal in the case of Mukesh R Marolia vs Additional CIT reported in (2006) 6 SOT 247 (Mum.) dated 15.12.2005 wherein it was held as under:- 10.7 Therefore, we find that the explanations of the assessee seems to have been rejected by the assessing authority more on the ground of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1....
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....1 cannot be faulted. 8. In the result, we see no merit in this Appeal and the same is dismissed with no order as to costs. The ld AR also placed on record the evidence for dismissal of Special Leave Petition (SLP) of the Revenue by the Hon'ble Apex Court in SLP No. 20146/2012 dated 27.1.2014 against the decision of the Hon'ble Bombay High Court supra. 6. The ld DR on the other hand vehemently supported the share price movements in graphical form of the said scrip. He also placed reliance on the decision of Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain vs PCIT, Nagpur & Another in ITA No. 18 / 2017 dated 10.4.2017 which was decided in favour of the revenue with regard to the issue of huge increase in share sale prices. He also placed reliance on certain books authored by Mr Parag Parikh titled as 'Value Investing and Behaviorial Finance ( Insights into Indian Stock Market Realities)' wherein the various human behaviour with regard to the time of purchase of scrip and exit from stock markets were listed out. 7. We have heard the rival submissions and perused the materials available on record including the paper book of the assesse....
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.... 7.3. We find that the ld CITA had given a categorical finding in his appellate order that the concerned scrip was not suspended by SEBI either at the time of transaction of allotment of shares to the assessee or sale of shares by the assessee. He also observed that the ld AO had disallowed the claim of the assessee and treated the long term capital gain as unexplained cash credit solely on the basis of general report of the investigation wing, Kolkata and accordingly the action of the ld AO was based purely on surmises and suspicions. The ld CITA had also observed that the contention of the assessee that there was no enquiry by SEBI regarding shares of STFL that the prices of these shares were rigged is also correct since the ld AO has neither referred to any copy of such reports nor has he given any such reports to the assessee showing the transactions in these shares were rigged. No investigation has been carried out by the ld AO or by the investigation wing to bring on record any material to disbelieve the claim of the assessee. He observed that the ld AO had made academic discussion regarding the probability of the assessee having entered into transaction in collusion with ope....
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....ve that the transactions happened and got recorded in the stock exchange and that it does not give credence to the transaction per se. In this regard, we find that the transactions of purchase and sale of shares happen in the secondary market based on the prevailing market prices through the registered stock brokers in the concerned stock exchange. This is how the transactions happen across the world. For these events, the documents are furnished by the stock brokers in the form of contract notes , delivery instructions submitted by the parties for effecting the sale through the recognized stock exchange and transactions of movement of shares from one person to another are recorded in the respective demat statements issued by the concerned Depository Participant. These documents cannot be disbelieved as not giving any credence to the share transactions as they had happened in the open market. In any case, it is for the revenue to bring out any other extraneous material to prove that these documents are fabricated with the connivance of assessee, registered stock broker and recognized stock exchange. It cannot be brushed aside that these transactions in the open market had duly suff....
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....of annual return no. 20B filed with Registrar of companies by "Smart Champs IT & Infra Ltd. "is placed in the Paper Book at page no. 12 to 18.) 4. The assessee lodged the said shares with the Depository M/s. Eureka Stock & Share Broking Services Ltd. with a Demat request on 11th February, 2012. The said shares were dematerialized on 31st March, 2012 (copy of demat request slip along with the transaction statement is placed in the paper book at page no. 19 to 21). 5. On 24.01.2013, the Hon'ble Bombay High Court approved the scheme of amalgamation of "Smart Champs IT and Infra Ltd." with "Cressanda Solutions Ltd." In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of "M/s. Cressanda Solutions Ltd." The demat shares are reflected in the transaction statement of the period from 1st November 2011 to 31st December, 2013 (A copy of the scheme of amalgamation along with copy of order of the Hon'ble Bombay High Court and a copy of the letter to this effect submitted by "Cressanda Solutions Ltd". to Bombay Stock Exchange is placed in the Paper Book at page no 22 to 43.) 6. The assessee sold 50000 shares costing Rs. 500000/- through her bro....
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....ands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assesee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department. 14. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submission of the assessee that....
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....ogus capital gains transactions. However, we do not find that the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any finding specifically agains....
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.... on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the p....
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....to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alteram partem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the government servant, he will not be able to conduct an effective and useful c....
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....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 ex-factory 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. 6. 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 pri....
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....That being the position, Tribunal having analyzed the set off acts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed." b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No.292/JP/2017]order dated 06.04.2018 held as under vide Page 9 Para 3: "We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account." c)The Hon'ble Punjab and Haryana High Court in the case of PREMPAL GANDHI [ITA-95-2017(O&M)] dated18.01.2018 at vide Page 3 Para 4 held as under: "..... The Assessing Officer in both the cases added the appreciation to the assessee's' income on the suspicion that these were fictitious trans....
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....false or fictitious or bogus. 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 that income from LTCG is exempted u/s 10(38) of the Act." Further in Page 15 Para 8.5 of the judgment, it held: "We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT (A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT (A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We, therefore, direct the AO to delete the addition." e) The BENCH "D" OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as under: "........ We find that t....
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....h in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. 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 ld 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 ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act." g) The BENCH "H"OF MUMBAI ITAT in the case of ARVIND KUMAR JAIN HUF [ITA No.4682/Mum/2014]order dated 18.09.2017 held as under vide Page 6 Para 8: "......We found that as far as initiation of investigation of broker....
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....e present appeal. Hence, the present appeal is dismissed." i) The Hon'ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: "The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank." j) The Hon'ble Supreme Court in the case of PCIT vs. Teju Rohitkumar Kapadia order dated 04.05.2018 upheld the following proposition of law laid down by the Hon'ble Gujrat High Court as under: " It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found th....