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TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1377
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....he AO issued notice u/s. 148 of the Act. The assessee is an individual who claimed LTCG to the tune of Rs. 28,93,483/- on sale of shares of M/s. Tuni Textiles Ltd. The AO reopened the assessment on the basis of information received from Directorate of Income Tax (Inv.) that the assessee had transacted in penny stock shares. Thereafter, the AO made the assessment u/s. 147/143(3) of the Act treating the LTCG of Rs. 28,93,483/- as unexplained cash credit u/s. 68 of the Act. The AO further made addition of Rs. 14,467/- for alleged commission @ .5% paid to obtain the alleged bogus LTCG u/s. 69C of the Act. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of AO. Aggrieved, assessee filed appeal before the Tribunal. 4. I have heard rival submissions and gone through the facts and circumstances of the case. We note that though the assessee has raised the legal issue against validity of reopening u/s. 147 read with sec. 148 of the Act, it is noted that in the reassessment order the addition is in respect of the LTCG claim of the assessee in respect of sale of scrip of M/s. Tuni Textile Mills Ltd. as exempt u/s. 10(38) of the Act which was held by AO to....
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.... Prabhudayal Sureka which has been recorded by the department. The AO has reproduced his statement in the assessment order itself. After carefully going through the contents of the statement we note that this statement was recorded by the department before the search i.e. on 02.06.2015 whereas search took place on 12.08.2015. So admittedly no incriminating statement was recorded during search under section 132(4) of the Act. As we noted this statement was recorded by the department before the search and the inference that can be drawn is that the search team leaders would be aware of the statement of Shri Narendra Prabhudayal Sureka in respect of shares of M/s. TTML, so while conducting search, they would enthusiastically look for some material/diary/electronic entry/computer entry/print out to show the movement of cash from assessee's coffer to the purchase of shares from assessee (i.e. to the pre-arranged buyer at the Bombay Stock Exchange who bought assessee's share of M/s. TTML for astronomical price) or as to find out any correspondence/link/nexus to establish the assessee's relationship between Shri Narendra Prabhudayal Sureka or Shri Manish Baid. Though during hearing we ask....
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.... will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and a....
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....in the business of manufacturing cloth from yarn. It is discerned that M/s. TTML was delisted due to non-compliance with the statutory requirement of BSE and the company incurred losses so, had applied with the BIFR in the year 2000 and was declared as a sick unit on 16.04.2002. Thereafter, he said that when the proceedings were going on at BIFR, since no financial institution was forthcoming to finance the company, he came into contact with Shri Manish Baid who suggested him the route of preferential shares to raise capital and he has replied to question no. 12 that the list of preferential allottees was given at annexure I (which is not annexed before us) and that he has raised capital of Rs. 7,50,00,000/- at Rs. 10/- face value from 47 HUF/individual on 25.01.2010. According to Shri Narendra Prabhudayal Sureka these preferential shares were allotted to people who was known only to Shri Manish Baid and to question no. 31 he has answered that the amount received as investment through preferential share allotment was utilized for the business affairs of the M/s. TTML in the form of capital investment and a separate bank account was created with the Indian Overseas Bank, Nariman P....
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....tial share allotment, which paved the way for LTCG. Though we note that shri sureka has conveniently palmed off the wrong acts attributable to shri Baid alone and the department has not spelled out what action has been taken against Shri Narendra Prabhudayal Sureka in the light of his own statement or it has been examined as to whether his statement is self serving or not, could have been cleared only if statement of shri Manish Baid was recorded which clearly could have brought out the correct facts. So without the statement of Shri Manish Baid we cannot attribute any wrong doing on the part of assessee. From the aforesaid discussion we note that the statement of shri sureka does not in any manner directly implicate the assessee and so based on the statement of shri sureka alone, no adverse inference can be drawn against the assessee. Therefore, we made a finding supra that shri sureka statement reproduced in the assessment order as not incriminating qua the assessee. 14. Coming to the merits of the case we note that the assessee has applied for allotment of 2,00,000 equity shares at face value @ Rs. 10 each on 4.01.2010 in M/s. TTML. The company issued and allotted 2,00,000 equ....
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....nsactions took place in the floor of the recognized stock exchange (BSE), the income was computed by assessee under long term capital gain which is exempted from tax u/s. 10(38) of the Act. The assessee produced all relevant documents in support of the transaction including purchase bills, sale contract notes, bank statement and D-mat statement reflecting purchase and sale of shares the LTCG claim of assessee cannot be brushed aside without adverse material to suggest it as bogus. We note that the Balance 91,000 shares were continued to be reflected in the de-mat statement. In the computation of income, income under various heads, were stated including income from long term capital gain. Further the LTCG was shown in the income side of the Income-Expenditure A/c for FY 2010-11. Computation of income for AY 11-12 & I & E a/c is found placed at page 94 of the paper book. Balance investment in M/s. TTML for 91,000 at a cost of Rs. 9,10,000 was continued to be reflected in the Balance sheet as on 31/03/2011. Copy of Balance Sheet as on 31/03/2011 is found placed at page 95 of paper book. We also note that the assessee has submitted an extract of price data of BSE to substantiate that t....
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....which is supported by some material to suggest) that assessee was beneficiary to the whole stage managed claim of exempt gain. 16. AO invoked section 68 of the Act treating the share transaction as sham and added the LTCG of Rs. 2,35,93,694 invoking section 68 of the Act. Section 68 of the Income Tax Act, reads as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 17. From the above it may be seen that the primary liability, u/s 68 of the Act, is that of the assessee in whose books the cash credit entry is found. This liability arises only when the assessee fails to prove satisfactorily the source from where it received the amount and the nature of the amount so received that is, it has to show how the said amount is not an incomereceipt. 18. From the aforesaid documents discussed in detail herein above at para 14 (supra) it can be seen that the assessee....
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....be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale price are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalizations. Courts of law are bound to go by evidence." 19. Section 68 of the Act requires the assessee to explain the nature and source of such credit. On the issue of burden of proof, the Hon'ble Calcutta High Court, in the case of CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) laid down that the assessee is required to establish: a) Identity of payer, b) Genui....
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....number, settlement number, details of service tax paid, details of brokerage and details of STT paid. No material was brought on record by the AO that the information contained in contract note was false or that the sale of shares actually never happened. On the contrary the information shows that the assessee carried out sale through BSE, the sale was made at the prevailing price at the Exchange and the consideration was received through BSE via banking channel after delivery of shares from the de-mat account. 24. After disposal of shares, delivery of shares was made thorough assessee's de-mat account with M/s Eureka Stock & Share broking services Limited. The entries in the de-mat account showed that delivery of shares was recorded in the NSDL's record and the shares were delivered to the de-mat account of M/s. GCM Securities Limited. These facts were neither controverted nor disproved by the AO. 25. On the contrary, we note that despite specific request made by assessee during assessment proceedings the AO did not conduct any investigation in relation to the alleged chain of transactions leading to ultimate destination of the cash which could have shed light on the a....
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.... 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 operandi of companies indulging in practices not sanctioned by law and as mentioned in such report. However, we note that neither any investigation was carried out against the assessee nor against the brokers to whom the assessee dealt with the purchase and sale of shares in question. Thus the AO has failed to bring on record any material contained in the purported reports which are having so called adverse impact on the assessee. 9.3. In the light of the docu....
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....hed by producing documentary evidence. It is true that some of the transactions were 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. The statement of the broker P that the transactions with the H 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 perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show 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, yn the light of the documentary evidence adduced to show that t....
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....unted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less ....
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....owever, 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 crossexamination 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 exfactory 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. 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 price list itself could be the subject matter of cross-examination. Therefore, it was n....
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....o the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. 19. Accordingly, we direct the A.O. to treat the gains arising out of the sale of shares under the head capital gains- "Short Term" or "Long Term" as the case may be. The other grievance of the assessee becomes infructuous." The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The following judgments of Hon'ble Jurisdictional High Court:- The Hon'ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by observing as follows:- "4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. ....
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....hat on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive. iv) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) - In this case the Hon'ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI's action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. v) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal ....
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....ol)/ of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO - ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) (ix) Anil Nandkishore Goyal vs. ACIT - ITA Nos. 1256/PN/2012 (Pune ITAT) (x) CIT vs. Sudeep Goenka - [2013] 29 taxmann.com 402 (Allahabad HC) (xi) CIT vs. Udit Narain Agarwal - [2013] 29 taxmann.com 76 (Allahabad HC) (xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil - [2014] 41 taxmann.com 425 (Gujarat HC) (xiv) CIT vs. Maheshchandra G. Vakil - [2013] 40 taxmann.com 326 (Gujarat HC) (xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT - ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT - ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 32. The ld AR also brought to our notice that once the as....
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....the Hon'ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit. 35. It is clear from the above that the facts of the case of the assessee are identical with the facts in the case of Kiran Kothari HUF (supra), wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s TTML. So we, respectfully following the sa....