TaxTMI 
TaxTMI 
2019 (6) TMI 298
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....ssessee claimed long term capital gains from sale 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 ....
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....ount of cash from the beneficiaries, deposited the same 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....
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....es of KAFL were bogus and that the assessee ploughed back his unaccounted 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 hig....
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....ny M/s. Careful project off-market from an unknown entity was an investment decision at all or not. 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....
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....which remain unproved based on the evidences 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 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 ma....
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....f the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act. We also find that the 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 Limi....
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....Ltd. (Paper book page 21-51). 8. Copy of contract notes evidencing the sale of shares Kailash Auto Finance Ltd. (Paper book page 56-60). 9. Copy of Brokers ledger and financial statements ( paper book page 64-73). 10. Copy of 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....
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....ls his shares on the stock exchange does not know who purchases shares. According to our knowledge, the shares are sold and bought in an electronic mode on the computers by the brokers and there is also no direct contact at any level even between the brokers. We note that as and when any shares are offered for sale in the 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. Furth....
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....r spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee company need not incur advertisement expenses and the responsibility 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. Nir....
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....is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various 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 th....
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....t term capital gain as shown by the appellant." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought 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 q....
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....irmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established 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 ....
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....e was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted 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 th....
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....this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their 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 purpos....
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....ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to 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." 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 Ca....
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....he broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence." ii) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) - In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon'ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of 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 fa....
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.... for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 31. We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation 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 & O....
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....sal - 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 abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CI....