TaxTMI 
TaxTMI 
2019 (6) TMI 298
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....le of shares of M/s. KAFL and M/s. EIL. The AO noted that the assessee had purchased 2,00,000 shares of M/s. Careful Projects Advisory Limited (CPAL) at a face value of Rs. 1 each for a total consideration of Rs. 2,00,000/- which company (CPAL) later got amalgamated with M/s. KAFL by virtue of an order of Hon'ble Allahabad High Court and in pursuance to such amalgamation, the assessee was allotted 2,00,000 shares of KAFL of the face value of Rs. 1 each. The said shares were later sold on Bombay Stock Exchange [BSE] through a broker named M/s. Sykes & Ray Equities (I) Ltd. on different dates falling within the previous year 2013-14 corresponding to the Asst Year 2014-15 at a price of Rs. 74,65,600/-., which according to assessee, resulted in Long Term Capital Gains and so the assessee claimed exemption u/s 10(38) of the Act of Rs. 72,65,600/-. Likewise, the assessee had purchased 1,00,000 shares of M/s. EIL at a face value of Rs. 11/- each for a total consideration of Rs. 11,00,000/- through the seller Delight Dealmark Pvt. Ltd. The said shares were later sold on Bombay Stock Exchange [BSE] on different dates through the same broker named M/s. Sykes & Ray Equities (I) Ltd. falling ....
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.... to various undisclosed proprietorship concerns, and finally transferred the same to bogus/shell companies, by layering through various accounts, which had ultimately purchased the shares sold by the beneficiaries. The AO has also relied upon statement of Shri Sunil Dokania recorded u/s 131 by the Investigation wing, in the case of Rashmi Group of Kolkata ; Statement of Shri Dipan Jesingbhai Patel recorded on 20.5.2015; Statement of some beneficiaries who had corroborated the modus operandi as revealed by Shri Dokania. The aforesaid statements were referred to in the Assessment Order to come to a conclusion that the assessee was one of the beneficiaries of the transactions in shares of KAFL which resulted in bogus claim of exempt LTCG. 5. The AO, on the basis of movement of price of KAFL quoted in Bombay Stock Exchange during the period of September, 2013 to January, 2014 (the period of sale of shares of KAFL by the assessee), found that the price of shares had increased by 267%. The AO concluded that while Sensex showed almost no progress, price of shares of KAFL moved phenomenally. The AO also referred to the financials of KAFL during the Financial years 2011-12 to 2015-16 and ....
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....nted money in the books of accounts which is assessable under section 68 of the Act. 9. Likewise, in the case of M/s. EIL the AO has analyzed this scrip from page 23 of the assessment order (para 3.14.1). According to AO, the company merely forwarded the share capital received through preferential placement of shares (the off market route) in FY 2010-11 and later on in 2012-13 towards loans and advances. And during these periods astronomical rise of share prices of the scrip happened and there was no corporate announcement of any big order or any such news which could have resulted in such frenzy in the scrip price shooting up. Therefore, according to him, an astronomical rise in price was not related to the fundamentals of the market. After taking note of few purchases which depicted the price rising of M/s. EIL, the AO concludes that the prices were rigged to increase the scrip price significantly. Thereafter, the AO took note of the modus operandi followed by unscrupulous persons in converting their unaccounted money by purchasing penny stocks for a very nominal price and selling them for astronomical high prices and claimed LTCG as exempt income. And also the person buying th....
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....He also stated that it is relevant to mention that, one of the promoter and entry operator of Kailash Auto and Careful projects , Sri Sunil Dukania, a CA, in his statement given before the DDIT (Inv.) of income tax u/s 131(1) of the Act on 12.06.2015 admitted that these are paper companies having no real business and both are controlled by entry operators. Directors are only dummy persons there. In view of such fact it is very clear that the submission of the assesses regarding the reason for purchase of share of that was not an investment decision but a move to get an entry for LTCG income. The Ld. DR also submitted that there is report of SEBI confirming that Kailash Auto stock was grossly manipulated on the Stock exchange platform to generate bogus capital gain income for beneficiaries to evade payment of tax. Thus, according to Ld. DR, it is evident that assessee's purchase of that sock was not an investment decision but only an entry point to come to the listed company Kailas Auto in order to generate bogus LTCG income , and thus, assessee was a part of such scheme of things as its beneficiary. He also stated that on the issue of demanding cross-examination of the director....
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....d AR are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon'ble High Court. The ld AO ought not to have questioned the validity of the amalgamation scheme approved by the Hon'ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross -examination. Moroever, it is also pertinent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which 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 lower authorities apart from placing the copy of SEBI's interim order supra. We find that the SEBI's orders relied on....
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....e various case laws of Hon'ble Jurisdictional High Court relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee." 15. Coming back to the facts of the instant case before us, we note that the assessee had purchased 2,00,000 Equity shares of M/s. Careful Projects Advisory Limited on 13.02.2012 which shares were credited to its de mat account [page 8 PB] The assessee had made payment for purchase of above shares through RTGS dated 10.02.2012 drawn on HDFC Bank, account no.12041378531.[page 6PB] The shares were purchased from M/s. Sanskriti Vincom Private Limited, off market. Later M/s. Careful Projects Advisory Limited was amalgamated with M/s. Kailash Auto Finance Limited by an order dated 21.05.2013 u/s. 391, 394 of the Companies Act, 1956 of Hon'ble Allahabad High Court. By virtue of this amalg....
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.... the bank statement reflecting the transactions of sale of shares of Kailash Auto Finance Ltd. (paper book page 61-63). 17. We note that the assessee had purchased 100000 shares of M/s. EIL on 23.03.2013 which is evident from paper book page 4. We also note that after the purchase of shares it was demated which is evident from the Demat holding statement reflecting the same at paper book page 7 to 16. After holding the shares of M/s. EIL for more than 12 months the assessee had sold the 24000 shares of M/s. EIL on 12.11.2013 on BSE through broker Sykes & Ray Equities (I) Ltd. which is evident from paper book page 52 and thereafter, 25,000 shares of M/s. EIL sold on 27.11.2013 on BSE through broker Sykes & Ray Equities (I) Ltd. which is evident from paper book page 53. Thereafter, the assessee had sold 20,000 shares of M/s. EIL on 05.12.2013 on BSE through broker Sykes & Ray Equities (I) Ltd. which is evident from paper book page 54 and 31,000 shares of M/s. EIL sold on 12.12.2013 on BSE through broker Sykes & Ray Equities (I) Ltd. which is evident from paper book page 55. We also note that the assessee had purchased the shares through banking channel and sale consideration was re....
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.... stock exchange platform, any one of the thousands of brokers registered with the stock exchange is at liberty to purchase it. As far as our understanding, the selling broker does not even know who the purchasing broker is. This is how the SEBI keeps a strict control over the transactions taking place in recognized stock exchanges. Unless there is a evidence to show that there is a breach in the aforesaid process which fact has been unearthed by meticulous investigation, we are of the opinion that the unscrupulous actions of few players exploiting the loopholes of the Stock Exchange cannot be the basis to paint the entire sale/purchase of a scrip like that of M/s. KAFL & M/s EIL as bogus without bringing out adverse material specifically against the assessee. 20. The fact of holding the shares of M/s. KAFL & M/s EIL in the D-mat account 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, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat acco....
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....ibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had ....
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....us other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated i....
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....ught all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." 23. We note that the sale of shares of M/s. KAFL & M/s EIL which was dematerlized in Demat account has taken place through recognized stock exchange and assessee received money through banking channel. So, assessee has explained the nature and source of the money with supporting documents and thus has discharged the onus casted upon him by producing the relevant documents mentioned in para 15 (supra), accordingly, the question of treating the said gain as unexplained cash credit under section 68 of the Act cannot arise unless the AO is able to find fault/infirmity with the same. We note that the source of the receipt of the amount has been explained and the transaction in respect of which the said amount has been received by assessee has not been cancelled by the stock exchange/SEBI. So, it is difficult to c....
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.... 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 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 ....
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....er 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 a substantial question of law, arises for adjudication.- C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. vs. CIT (1959) 37 ....
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....alers 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 not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, o....
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....the head capital gains- "Short Term" or "Long Term" as the case may be. The other grievance of the assessee becomes infructuous." 30. The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016 and the decision by Hon'ble Calcutta High court in PCIT Vs. BLB Cables & Conductors Pvt. Ltd. in ITAT No. 78 of 2017 dated 19.06.2018 wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. 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 bogu....
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.... loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated. iii)CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) - In this case the Hon'ble Calcutta High Court held that 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 ....
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....n Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ 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....