TaxTMI 
TaxTMI 
2019 (2) TMI 798
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.... 2012-13, the main grievance of the assessee is against the action of the Ld. CIT(A) in upholding the addition of Rs. 2,89,17,929/- which the assessee received as sale consideration/LTCG/exempt income on sale of scrip of M/s. Tuni Textiles Mills Ltd. and 0.5% of its amount comes to Rs. 1,44,590/- as commission. 3. The brief facts of the case as noted by AO are that pursuant to a warrant u/s. 132 of the Act search was carried out in the residential and business premises of Chirag Group on 12.08.2015 and the AO noticed that the assessee an individual belongs to this group. Thereafter, according to AO, during the course of search and seizure operation certain incriminating documents were found and it reveals that this assessee has availed certain bogus LTCG during the AYs. 2011-12 and 2012-13. According to AO, the following incriminating documents related to the case were seized during the course of search and seizure operation: Rameshchandra K. Shah CJ-2 21 to 31 AY 2010-11 AY 2011-12 AY 2012-13 Bogus LTCG taken by the assessee Rameshchandra K. Shah CJ-13 21 to 39 08 to 18 AY 2012-13 AY 2011-12 Bogus LTCG According to AO, if the shar....
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....nsel for the assessee, Shri Miraj D. Shah assailing the decision of the Ld. CIT(A) drew our attention to the fact that the assessee had filed return of income on 18.08.2011 for AY 2011-12 and the date for issuing sec. 143(2) notice elapsed on 31.03.2012. So, on the date of search i.e. on 12.08.2015 the assessment for AY 2011-12 was not pending before the AO on the date of search and, therefore, no addition can be made without the aid of incriminating material unearthed during the search. Likewise, in respect to AY 2012-13, the Ld. AR submitted that the return of income for this assessment year was filed on 11.09.2012 and the date for issue of sec. 143(2) notice elapsed on 30.09.2013 and since this assessment year was also not pending before the AO on the date of search i.e. on 12.08.2015, therefore, the AO cannot make any addition without the aid of incriminating material unearthed during search. For the aforesaid proposition of law, the Ld. AR drew our attention to the following judgments: i) The Hon'ble Delhi High court in CIT Vs. Kabul Chawla (2016) 380 ITR 573 (Del.), ii) The Hon'ble Jurisdictional Calcutta High Court in ITA No. 661 of 2008 Commissioner of Income Tax ....
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.... High Court Nagpur Bench at Nagpur, ITA No.18/2017 (Sanjay Bimalchand Jain Vs. CIT dated 10.04.2017 wherein the Hon'ble High Court upheld the Tribunal's order and the AO's order making such an addition on sale of penny stock. The Ld. DR also relied on the decision of the Bangalore Tribunal in Smt. M/. K. Rajeshwari Vs. ITO, ITA No. 1723/Bang/2018 dated 12.10.2018 wherein also the Tribunal was pleased to confirm the addition on such gain of LTCG exempt income. The Ld. DR also brought to our notice the decision of the Hon'ble Supreme Court in the case of S. Ajit Kumar in Civil Appeal No. 10164 of 2010 dated 02.05.2018 wherein the Hon'ble Supreme Court in sec. 158BB proceedings held that the materials found during simultaneous survey carried out along with search can also be taken into consideration while making assessment. The Ld. DR also drew our attention to the fact that in the statement of Shri Narendra Prabhudayal Sureka has accepted that M/s. TTML is a penny stock company and the shares of the company have been used to provide accommodation entry of LTCG to the preferential allottees during AY 2011-12 to 2012-13. And, according to him, the assessee was given opportunity to a....
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.... of account. In the light of these evidences on record we are of the opinion that the purchase of shares per-se cannot be held to be bad. 9.1. We note that there was a survey conducted u/s 133A of the Act by the Mumbai Investigation Wing against M/s. Tuni Textile Mills Pvt. Ltd on 02.06.2015 and in the survey a deposition was taken on oath wherein the Managing Director of the said company Shri N.P.Surekha was examined and he stated that 47 persons were allotted preference shares on 25.01.2010 and a sum of Rs. 7.50 crores was raised by the company. He further submitted that this entire deal was done by one Shri Manish Baid and then these 47 investors used the shares allotted to them, sold the same at jacked up price and in the process they earned bogus long term capital gain from such transactions which was stage managed by Shri M.Baid. Based on this statement, the lower authorities concluded that the transactions of the assessee were also part of the bogus transactions and the same was accordingly held to be unexplained cash credit u/s 68 of the Act. We do not subscribe to the said view taken by the authorities below for the reasons stated below:- We note that the assessee wa....
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....per book v) The bank statement maintained by the assessee with Bank of Maharshtra reflecting the payment received for the sale of shares (page 23 of the paper book). 9.2. 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 surrounding circumstance, human conduct and preponderance of probability without bringing on record any relevant legally admissible evidence against the assessee. For the said proposition we rely on the judgment of the Special Bench of Mumbai Bench in the case of GTC Industries Ltd. (supra). The various facets of the contention of the AO, to rope in the assessee for drawing adverse inferences which remain unproved based on the evidence available on record are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the ld. AR are also not reiterated for the sake of brevity. We further find that neither the reports relied on by the AO has not been brought on record nor is there any reference of finding of such report to impute the assessee is there on record. The AO has merely carved out certain features/modus- o....
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.... share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued 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 last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It is the assessee's contention that even though there are allegations against the broker, and for that reason the assessee cannot be held liable on this point, the tribunal held that - "As a matter of fact the AO doubted the integrity of the broker and the broker firm and also AO observed that the assessee had not furnished any explanation in respect of any discussion of trading of shares. The AO relied the loss of Rs. 25,30,396/- only on the basis of information submitted by stock as fictitious. The AO has also not doubted the genuineness of the documents placed by the....
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....re 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 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 being ITA No.620 of 2008 is dismissed." 9.4. 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 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 u....
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....e assessee when in fact it is not as pleaded before us. 9. Further, the Ld. AR drew our attention to the statement given by Shri Narendra Prabhudayal Sureka wherein according to AO and Ld. CIT, DR, shri sureka admitted that M/s. TTML is a penny stock company and was involved in providing accommodation entry to preferential share holder of the said scrip and even after this statement against the assessee was brought to the notice of assessee, the assessee did not utilize the opportunity given by the department to cross examine shri sureka which goes on to affirm the department's view that shares of M/s. TTML is penny stock and LTCG claim is nothing but bogus. The Ld. AR explained that first of all, the assessee does not know this Shri Narendra Prabhudayal Sureka and undisputedly the statement of this person was recorded behind the back of the assessee and so in the first place it cannot be relied upon to draw adverse inference against the assessee. Drawing our attention to the entire statement of Shri Narendra Prabhudayal Sureka, the Ld. AR contended that there is no whisper of the assessee's name by this person even as a beneficiary from the purchase and sale of shares of M/s. T....
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....as correct, the assessee's claim ought to have been accepted unless there is adverse material to the contrary against the assessee on his LTCG claim. Therefore, since the Tribunal has already accepted the claim of LTCG of other assessee's in respect to the scrips of M/s. TTML, he wants us to allow the claim of the present assessee also. 10. We have heard rival submissions and gone through the facts and circumstances of the case. First, we make it clear that as per the admitted facts enumerated in para 4 supra, both the assessment years before us are unabated assessments, since these assessment years were not pending before the AO on the date of search on 12.08.2015, so no addition can be made by the AO, without the aid of incriminating materials. With that background in mind, let us see whether there are any incriminating materials unearthed against the assessee during search, which can justify the addition made by the AO. In the said look-out, we note that the AO's assertion that incriminating material i.e. CJ-2 and CJ-13 were recovered during search which show that the assessee dealt with M/s. TTML which resulted in bogus LTCG, our opinion after examining carefully each docume....
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....tly implicate the assessee in any wrong doing cannot be termed as incriminating material against assessee. Moreover, we should hasten to add that Shri Narendra Prabhudayal Sureka's statement (in detail we will discuss later) is a general statement that M/s. TTML is a penny stock. However, we note that Shri Narendra Prabhudaya Sureka has attributed no knowledge about the beneficiaries and has put the entire blame on Shri Manish Baid, whose statement AO has not placed on record and so Shri Narendra Prabhudayal Sureka's statement in no way advances the case against the assessee, because Shri Narendra Prabhudayal Sureka is ignorant about any preferential share holders. So without any incriminating material against the assessee found during search in respect to shares of M/s. TTML, no addition can be made without incriminating material found during search. So, since both the AY's before us were not pending before AO on date of search, so without incriminating materials unearthed during search, no addition can be made as held by Hon'ble Delhi High Court in Kabul Chawla (supra) wherein their Lordships held as under: ""Summary of legal position 37. On a conspectus of Section 15....
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.... already disclosed or made known in the course of original assessment." 11. The Hon'ble Jurisdictional Calcutta High Court in ITA No. 661 of 2008 Commissioner of Income Tax vs.Veerprabhu Marketing Ltd. has also held as under: "We agree with the view expressed by the Karnataka High Court that incriminating material is pre-requisite before power could have been exercised u/s 153(C) r.w Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD.CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed". 12. In a similar case M/s. Kurele Paper Mills Pvt. Ltd. addition was made by the AO (in sec. 153A proceedings) without incriminating material unearthed during search, the share capital received by the assessee u/s. 68 of the Act was deleted by the Tribunal, which order has been upheld by Hon'ble Delhi High Court in Pr. CIT Vs. Kurele Paper Mills Pvt. Ltd. (2016) 380 ITR 571 (Del) which decision has not been disturbed by the Hon'ble Su....
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....the Preferential allottees and on the same breath again has said that the entire scheme has been managed and controlled by Shri Manish Baid. From the reply of shri sureka, it transpires that M/s. TTML is a running cloth Mill and there are still employees working in his factory and also he does not know personally about the preferential shareholders and conveniently has stated that one Shri Manish Baid has brought these shareholders from whom Rs. 7.50 cr. was collected and it was infused as capital into his company M/s. TTML. It is also noted that though Shri Narendra Prabhudayal Sureka has stated that he does not know any of the preferential allottees, we note that the AO has not made any attempt to get the statement of Shri Manish Baid on board, which would have thrown light as to whether the assessee had any contact with Mr. Manish Baid who is supposed to have been main player, and would have cleared the air of suspicion. We note that the assessee has been allotted preferential shares vide letter dated 27.01.2010 of Rs. 2 lacs vide company's share certificate dated 25.01.2010 which though casts doubt, but it cannot be the sole basis for terming the entire claim of assessee as ....
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.... the purchase consideration of Rs. 20,00,000/- vide account payee cheque issued upon Bank of India on 14/01/2010, which was cleared on 15/01/2010. Copy of Bank Statement is available at page enclosed at page-73 of the paper book. Such investment of Rs. 20,00,000/- made in M/s. TTML was duly reflected in the Balance Sheet of the assessee as on 31/03/2010. Copy of Balance Sheet and P&L account is seen placed at pages 74-75 of the paper book. The shares were de-matted with NSDL and kept in the de-mat account opened with depository participatory M/s Eureka Stock & Share Broking Services Limited (DPID: IN302105). Copy of De-mat request form is seen placed at page 76 of the paper book. The shares were released after completion of the lock-in period i.e. after 25/01/2011 and thereafter the assessee sold some of his holding through the Bombay Stock Exchange at various dates from 02/02/2011 through SEBI registered broker (No. INB 010793439), M/s GCM Securities Limited (BSE Code 6250). In this process 1,09,000 shares were sold till 30/03/2011 against contract notes, for total consideration of Rs. 2,46,83,694, which was inclusive of Security Transaction Tax (SIT) of Rs. 35,523. Copy of contra....
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....e Ld. AR submitted that the AO's show cause notice was replied denying any relation with the parties referred in the investigation report. Copy of the reply is found placed at pages 98 to 100 of the paper book. We note that the AO based on the general investigation report of the department discarded all the above evidences. Further the AO taking note of the price rise, high volume, low fundamentals etc. held that the share transaction as bogus. It was brought to our notice that the AO did not provide during the assessment proceedings, any copies of the material, investigation reports, statements purportedly recorded behind the back of the assessee to create a smoke screen of suspicion and doubt against the assessee. And AO based on third party evidence which were not supplied to the assessee brushed aside the aforesaid documents which substantiated the LTCG and held the transaction to be bogus, which according to Ld. AR, is not fair just and reasonable and so wants the claim of assessee allowed as done in similar case. 15. We note that for claiming exemption u/ s 10(38) of Act three requirement needs to be fulfilled. Firstly, the share purchased should be held for more than 1....
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....M Securities Limited. The AO, we note has not spelled out specifically any defects in the documents covering the transaction neither in the share allotment letter for acquisition nor in respect of contract notes for sale, bank statement showing payment for purchase & receipt for sales, De-mat statement showing movement of shares, Balance Sheet reflecting investment & corresponding booking of capital gains in the P&L a/c for corresponding sale of shares in different years. It is trite that once the assessee has discharged its onus/primary liability, it will be AO's burden to bring on record any cogent material in support of the contrary contention that the transaction encompassing the sale was sham. However, in the background of the facts discussed above, the AO failed to bring on record any material to substantiate the fact that the share transaction in question was bogus. The statement of Shri Narendra Prabhudayal Sureka to the department/investigation wing reproduced in the assessment order might show their complicity in indulging in the nefarious activity of providing accommodation entry for beneficiaries to claim LTCG on sale of shares of M/s. TTML, but these are general....
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....n turn the broker shall arrange for payment to the seller i.e. the assessee. In this case, M/s GCM Securities Limited, having SEBI registration no.INB 010793439, BSE membership no. 6250 had executed the transaction. Thus the identity of the broker is established from M/s. GCM Security Ltd. the broker. 21. From the records, the assessee received the sale consideration after sale of scrips of M/s. TTML Since M/s. GCM Securities Limited is a SEBI registered broker having membership both in NSE & BSE, there cannot be any question about the worthiness of the same as the same is covered under the KYC norms of the exchanges. It is noted that the broker had all along complied with the requirement to maintain the margin money as per Exchange norms and SEBI had never put any restriction on M/s. GCM Securities Limited for capital market operations. 22. To substantiate the genuineness of the transaction, the assessee had placed complete documents before the AO. In respect of acquisition of shares in M/s. TTML, the assessee submitted allotment letter of the company & bank statement showing payment of Rs. 20,00,000/- as consideration. Such purchase was also reflected in the De-mat statemen....
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....sment and prejudices the mind of AO. So, he brushed aside all the documents produced by the assessee without any reason. 26. The AO viewed that because of various adverse reports as well as unnatural price movement, the transactions made in M/s. TTML were bogus, the coordinate Bench of this Tribunal had occasion to deal with the issues raised for the shares of M/s. TTML in the case of Kiran Kothari. HUF vs. ITO, ITA No. 443/Kol/2017, where the shares were sold at a high price. Allowing the assessee's appeal, the Tribunal held: "9. We have heard the rival submissions and perused the records. We note that in the present case, the appellant had purchased 13500 shares of M/s. Tuni Textile Mills Private Limited on 06.04.2011 from a stock broker in off-market transactions from M/s Badri Prasad & Sons, who was a member of Calcutta Stock Exchange. These shares were held in the demat account of the assessee maintained with M/s. C. D Equisearch Pvt. Ltd, a member of Mumbai Stock Exchange and ultimately these shares were sold through M/s. C.D Equisearch and on such sale, Security Transaction Tax was duly paid. Payments were duly received in the bank account of the assessee. We take ....
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....has to fail. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/LD. CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the Ld. CIT(A) to be 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 exempted u/s. 10(38) the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion howsoever strong, cannot partake the character of legal evidence." 27. Let us look at ....
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....ribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.-Asstt. CIT vs. Kamal Kumar S. Agrawal (Indl.) & Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818 affirmed; Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 80 Taxman 89 (SC) distinguished." 12. The Hon'ble High Court of Rajasthan in CIT vs. Smt. Pushpa Malpani - reported in (2011) 242 CTR (Raj.) 559; (2011) 49 DTR 312 dismissed the appeal of department observing 'Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange A....
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....TR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P & H) 624 distinguished" 30. The Co-ordinate Bench of Ahmedabad in ITA Nos. 501 & 502/Ahd/2016 had the occasion to consider a similar issue which was wherein the assessment was framed on the strength of the statement of a broker. The relevant part reads as under:- "14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon'ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:- "6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no ....
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....il Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 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. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 16. On the strength of the aforementioned decision of the Hon'ble Supreme Court, the assessment order has to be quashed. 17. Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest....
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....uld be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO land PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In ou....
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.... assessee. The Tribunal held that the AO's conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed. vi) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. vii) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] - In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon'ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts ....
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....ase of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon'ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF - ITYA No. 32/Agr/2007 (Agra ITAT) 33. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of ....