AI Drafter 
TaxTMI 
TaxTMI 
2018 (1) TMI 1429
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....ideration was Rs. 1,98,28,636/-. He observed that several assessees of Raipur have shown LTCG on sale of penny stocks like the assessee and on enquiry in the case Shri P.K. Agrawal &Co, broker, it was found that the transaction were of dubious nature. It was further held that scrips were not of reputed companies and there cannot be appreciation of 18-20 times in the prices of such scrips. The AO held that that the assessee has converted his unaccounted income into white income through LTCG and in this process has paid tax at 10% against the normal rate of tax. 4. In appeal before the CIT(A), the AR of the assessee contended that the action of AO is not justified. The AO has formed the opinion on the basis of general enquiries conducted in different cases of Raipur where the transactions relate to some other shares and were carried out through some other broker. named, Shri P.K. Agarwal & Co. The assessee has purchased and sold shares of Multiplus Resources Ltd., which is listed in the Calcutta Stock Exchange. The assessee filed all the necessary details of the transactions, such as contract notes for purchase and sales, copy of letter of transfer of the shares in the assessee's ....
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....nquiries of the Investigation Wing at Kolkata have more than established that there was a systematic manipulation of the share prices in Kolkata Stock Exchange and unaccounted cash of numerous assessees was used through series of transactions to jack up the prices of shares of paper companies to arrange huge Long Term Capital Gain. These facts have come into light in the survey conducted in the case of M/s. P. K. Agrawal & Co. She has also referred to the inquiry conducted in the case or share brokers. Shri Prakash Chand Nahta & Co. and Shri Murarilal Goenka, Kolkata which was discussed in the assessment order. She had also stated that SEBI has suspended the certificate of registration of the broker on 15.12.2003 and on this basis, she has supported the A.O's action. 6. The assessee in his comment on the remand report contended that the A.O. has simply repeated the observations of the A.O. made in the assessment order in her remand report. She has not disputed the correctness of the evidences such as contract notes for purchase and sales; transfer of the shares in the assessee's name; share certificate; dematerialization of the shares; payment of Security Transaction Tax....
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....08. 8. The CIT(A) after considering the submissions of the assessee deleted the addition made by the AO. 9. Ld. DR has relied on the order of Assessing Officer. 10. On the other hand, ld. AR supported the order of CIT(A) and relied on the following decisions :- i) ITO Vs. Ravindra Sanghai (HUF), ITA No.698//Kol/2010, vide order dated 22.05.2012; ii) ITO Vs. Khalil M. Bharwani (2015) 45 CCH 0275 (MumbaiTrib) iii) ACIT Vs. Shri Ranjitsingh D. Bindra, ITA No.5534/Mum/2010, order dated 13.03.2013; and iv) CIT Vs. Kamal Kumar Agrawal, ITA No.67 of 2010, order dated 23.09.2010. 11. We have heard rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, the assessee has shown long term capital gain of Rs. 1,95,39,611/- and claimed exemption u/s.10(38) of the Act on the shares of M/s Multiplus Resources Ltd. purchased for Rs. 2,69,400/-, which was sold for Rs. 1,98,28,636/-. The AO observed that the assessee has shown long term capital gain on sale of penny stocks like several other assessees of Raipur and on enquiry in case of Shri P.K.Agrawal and company broker it was found that th....
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....arding correctness of the evidences such as contract notes; transfer of the shares in the appellant's name; share certificate; dematerialization of the shares; prevailing, rates on the date of transactions; etc. The appellant has established that the shares Multiplus Resources Ltd. are still listed for trading. In the case of Shri Vishnu Kumar Agrawal, Bhilai (supra), the Hon'ble jurisdictional Tribunal has observed as under. "After hearing the rival submissions and carefully the material available on record and keeping in view of the, facts that without bringing out any material on record to prove the share transaction of the assessee bogus, the claim of the assessee in respect of LTCG cannot be termed as bogus, which the AO has done in this case. We also find that in this case the assessee has produced before the AO the copy of ledger with purchase details, copy of bill issued by broker, copy of share certificates, letter of Stanley Securities. regarding transfer of shares, copy of request slip for dematerialization of shares into assessee's Demant Account with IDBI Bank, copies of contract notes. copy of delivery slip and copy of bank account reflecting cred....
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....he assessee. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer had not discharged his onus and there was no material or evidence with the Assessing Officer to come to the conclusion that the transaction shown by the assessee was a bogus transaction. The Commissioner (Appeals) took the view that if a company was not available at the given address, it could not conclusively prove that the company was non-existent. The Tribunal took into consideration that the Assessing Officer had not dealt with all the documents placed before him and had simply presumed that the transaction was bogus and held that the purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of the share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. On appeal : Held, dismissing the appeal, that there was no material before the Assessing Officer, which could have led to a conclusion that the transaction was a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the Asse....
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....eported by the concerned brokers to the stock exchange as per rules and even otherwise, any failure on the part of the brokers in doing such compliance cannot make the contract between the assessee and the broker illegal or void as the broker may face the consequences for his default under relevant statute. It is also noted that all the transactions are not off market transactions, hence, the AO's approach to pick and choose only such instances which are favourable to him cannot justify such addition. The Departmental Representative has also argued that there were differences in the information as per contract notes and as per information received from the stock exchange which fact is also not material because when some off market transactions have not been reported to the stock exchange, how such contract notes can be matched with the records of stock exchange. Economic consequences as a result of off market transactions or otherwise have taken place and, therefore, such transactions cannot be treated as sham merely for some discrepancies or for the view of the AO in regard to genuineness of these transactions. The Revenue has also relied on the decisions of SEBI involving some sc....
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....he identity, creditworthiness and genuineness of transaction. According to AO, there is no proper evidence brought on record to prove the genuineness of transaction as claimed to have been made by the assessee. According to AO, Calcutta Stock Exchange Ltd. (CSE) also negated transactions. The AO also referred the issue that the trading of shares in the above stated company was barred/suspended by CSE and SEBI after SEBI detected malpractices in the said shares. According to AO, the assessee has made purchases through S. B. Bhutra & Co. in the scrip through Shri Narayan Rajkumar Mercantiles Ltd. But according to CSE vide letter dated 18.12.2007 the following transactions were reported: Name of the scrip Name of member/broker Date of transaction Multiplus Resources Ltd. KCA Stock Broking Private Ltd. 01.12.2004 Multiplus Resources Ltd. KCA Stock Broking Private Ltd. 29.11.2004 The broker vide letter dated 10.11.2007 confirmed the following facts: "1. The said client, Sri Rabindra Sanghai (HUF) purchased through us 10000 shares of Shree Narayan Raj Kumar Mercantiles Ltd. On 03.08.2004 @ 3.52 i.e. for Rs. 35,200/-. The payment of the said am....
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....he case. We find that the assessee has filed all necessary details and documentary evidence qua purchases made from Stock brokers including copies of contract notes issued by broker. The assessee has also filed details of share credited in Demat account of assessee. This fact has not denied by Ld. Sr. DR during the course of hearing before us. No doubt the payments are made by cash as noted by AO in his assessment order qua the purchase of these shares but sale is supported by bank statement. We find that the payments are received through banking channels and assessee's claim of LTCG cannot be disturbed by the fact that some of the companies were indulged in malpractices at CSE and SEBI. When a query was raised to Ld. Sr. DR whether this particular scrip is put to scanner or not, Ld. DR could not reply and could not confirm that these transactions were under SEBI scanner. In such circumstances, we have no alternative except to uphold the order of CIT(A) and this appeal of revenue is dismissed." 16. The Mumbai Bench of the Tribunal in the case of ITO Vs. Khalil M. Bharwani, (2015) 45 CCH 0275 (Mumbai Trib), wherein it was held as under :- "5. In sum and substance the....
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.... transactions are out of cash in hand which was on account of gift received by assessee from his relatives. Purchase of shares was off bolt and such purchases are not reflected in the stock exchange. In this background the learned D.R requested to set aside the order CIT(A) and to restore that of Assessing Officer. On the other hand the learned A.R. for the assessee supported the order of the CIT(A). 7. After going through the rival submissions and material on record we find that Assessing Officer rejected the claim of long term capital gain on shares and brought the same to tax as unexplained cash credit under section 68 of the Act The stand of the assessee has been that the impugned receipt is on account of sale of shares which shares were duly purchased more than one year ago and were held thereafter continuously by assessee and therefore the gain on sale of such shares is to be held as long term capital gain exempt under section 10(38) of the Act. We find that assessee has purchased the shares through off market deal and therefore such transaction for purchase of shares by the assessee ought not to have been registered with the Calcutta Stock Exchange. Secondly, the Vo....
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.... and brother, the gifts in question have been duly reflected. Copies of the relevant returns of income alongwith capital accounts have been furnished before CIT(A) at relevant point of time and in this background it was the stand of the assessee that because of these gifts from the aforesaid two persons that there was so much cash in hand with the assessee. This fact has not been looked into by the Assessing Officer at relevant point of time. 10. The observation of the Assessing Officer that the transaction is not genuine and is engineered with a sole intention to show long term capital gain which is liable to a lower rate or income tax is because of (i) off market transaction, (ii) the payment for transaction is through cash (iii) physical delivery of shares has been given (iv) Kolkata Stock Exchange has denied having executed any transaction in the script i.e. Emerald Commercial Ltd. (v) shares were dematted in the month of August 2005 i.e. after more than one year of date of purchase (vi) shares were bought and sold in Kolkata has been duly rebutted and refuted by tendering sufficient evidence and therefore Assessing Officer Assessing Officer can only provoke a suspicio....
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....e demated in August 2002 and October 2003 i.e. almost one and half years after the alleged purchase. There is no explanation in this regard as to why the assessee demated the shares just before the alleged sale of the shares. The transaction of sale of shares in Kolkata Stock Exchange without any explanation is not a normal human behaviour, when the assessee is having account with sub-broker in Mumbai. The Assessing Officer received the information from Bombay Stock Exchange that the shares of Blue Chip India Ltd., was not traded on the Stock Exchange on the dates given by the assessee. Thus, the learned DR has submitted that the facts and circumstances of the case clearly shows that the assessee has manipulated the accommodation entries of Long term capital gains against his own undisclosed income. He has relied upon the decision of the Chandigarh Bench of this Tribunal in the case of CIT v. Som Nath Maini 100 TTJ 917 (Chd.) 4. On the other hand, the learned AR of the assessee submitted that the transaction of purchase is duly supported by the documentary evidence. He has referred the bills issued by Prince Securities in respect of the purchase of shares of Blue Chip Indi....
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....see were in consonance with the market price. He has further submitted that the decision in the case of Som Nath Maini (supra), relied upon by the Assessing Officer is not applicable to the facts of the case in hand because in the said case the Tribunal has found that the records of the broker was not available and shares remained in the name of the assessee even long time after the sale of shares therefore, the transaction does not stand the test of probability, whereas in the case of the assessee there is no such lack of availability of record or defect in the transaction of sale. He has supported the order of the CIT(A). 5. We have considered the rival submissions as well as the relevant material on record. The assessee claimed to have purchased 70,000 shares of Blue Chip India Ltd., in the month of April 2002 as under: Purchased on 10.04.02 37,000 shares for Rs. 20,350 Purchased on 12.04.02 37,000 shares for Rs. 18,150 The assessee purchased total 70,000 shares of Blue Chip India Ltd. for a total consideration of Rs. 38,500 at average cost of 55 paise per share. These shares were claimed to have been sold on various dates from September 2003 ....
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....i and alleged that by this transaction the assessee has converted his undisclosed income as Long term capital gains by accommodation entries. It is pertinent to note that the transaction of holding of shares has been duly shown in the balance sheet attached with the return of income for the A.Y. 2003-04 as the same is placed at page 178 of the paper-book. The CIT(A) after considering all the relevant facts and material has given his findings in para 11 of the order, which is as under: "11. I have carefully gone through the assessment order, the submissions made by the A.R and the facts of the case and various case laws relied upon. It is evident from the submissions made and the evidence for purchase and sale of shares of M/s. BlueChip India Ltd., produced before me that a) The appellant has purchased 7000 shares of M/s. BlueChip India Ltd. from M/s. Prince Securities Ltd. and the bills/confirmations in respect of such purchases have been duly filed before me b) The source for the purchase is profit earned in the transaction of Hinduja Finance & Geometric Software and the balance amount has been paid by cash c) The shares were received by the app....
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....engineered with a sole intention to show LTCG which is liable to lower rate of income tax is because of (i) off market transaction, (ii) the payment for transaction is partly though cash (iii) physical delivery of shares has been given, (iv) Prince securities from whom the shares were purchased has not dealt with in this shares except for the appellant., (v) Prince Securities did not have any demat a/c, (vi) shares of Bluechip Ltd were demated after long time of 16 months. (vii) shares were brought in Mumbai and sold in Calcutta, (viii) shares of Bluechip were not traded on BSE on the dates on which the appellant has done the transactions, (ix) sale consideration was received after a week from the date of sale, (x) the replies of the appellant in the statement recorded u/s. 131 were evasive (xi) the appellant has not shown the purchase of shares in the balance sheet as on 31.3.2003 has been duly refuted by tendering sufficient evidence and, therefore, in my view the disbelief of the AO can only provoke a suspicion, much less a belief about the transaction and in my view, the suspicion of the AO cannot clinch the transaction against the appellant. The various case laws reli....
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....iram group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On a perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, in the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Reliance placed by the counsel for the Revenue on the decision of the apex court in the case of Sumati Dayal [1995] 214 ITR 801 is wholly misplaced. In that case, the assessee therein had claimed income from horse ra....
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.... off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off market transactions cannot be a ground to treat the transactions as sham transactions. 13) The statement of Pradeep Kumar Daga that the transactions with the Haldiram Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assesses were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. 14) The Tribunal has further recorded a finding of fact that the cash credits in the Bank Accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, in the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were....