TaxTMI 
TaxTMI 
2019 (6) TMI 352
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....ater sold at a price of Rs. 14,06,366/-, 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. 13,66,366/-. However, the AO relying on the report of the Investigation Wing, Kolkata and an order by SEBI alleged that the claim of assessee of exempt income (LTCG) was bogus in nature. The AO further alleged that the transactions in the scrip of Kailash Auto Finance Ltd. (KAFL) were being manipulated by entry operators and the share prices were hiked artificially to earn LTCG. So, the AO did not accept the assessee's claim of LTCG and exemption thereof claimed by the assessee. Thereafter, the AO treated the same as cash credit u/s 68 of the Act and added the entire LTCG to the income of the assessee as unexplained income. On first appeal, the Ld. CIT(A) dismissed the grounds raised by the assessee against his claim of exemption u/s 10(38) of the Act and he also confirmed the additions made by the AO under section 68 of the Act. Aggrieved, the assessee is in appeal before this Tribunal. 4. I have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing it was br....
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....garding purchase of this stock found to be a dubious. It appears that the decision of such purchase was triggered by certain information in the possession of the assessee, or some arrangement and assessee just exploited such situation for making huge gain. So, the income arising out of such action should be considered as profit out of "an adventure in the nature of trade" and not from an investment. Therefore, it is submitted that, if the appeal of the assessee is upheld by the Hon'ble Bench for any reason, this alternative ground is put up for favour of your consideration. The AO considered the transaction as bogus and added the entire LTCG income u/s 68, so there was no occasion at that time to take an alternate ground for addition. In view of that, such transaction at best may be considered as an "adventure in the nature of trade" . In the case of Sanjay Bimalchand Jain[2018] 89 taxmann.com 196 (Bombay), the assessee purchased large number of shares of two penny stock companies at a nominal rate in large quantity which assessee claimed as an investment. Considering the circumstances of that case the Assessing Officer did not accept the claim of the assessee and held th....
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....sactions 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 by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in roder to have a good r....
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....ng Ltd. on 06.03.2013 (merged with M/s. Kailash Auto Finance Ltd. [hereinafter M/s. KAFL] on09.05.2013) for a consideration of Rs. 40,000/- from M/s. Shiv Shakti Pvt. Ltd. in an off market transaction. It is clarified that off market transaction has not been prohibited and if carried out legally cannot be held to be bogus only on this count. It is further noted that the said shares were later sold at a price of Rs. 14,06,366/- in the Stock Exchange of Bombay, which according to assessee, resulted in Long Term Capital Gains after remitting STT and so the assessee claimed exemption u/s 10(38) of the Act of Rs. 13,66,366/-. It is noted that the assessee has paid the amount of Rs. 40,000/- through account payee cheque to M/s. Shivshakti Exports Pvt. Ltd (purchase bill available at paper book pages 6-7 and copy of Bank statement showing payments made for purchase of shares found placed at pages 8-9 of paper book). The aforesaid 40,000 shares of M/s. Panchshul Marketing Ltd. were received in the DEMAT (page 11 of paper book). The said company (M/s. Panchshul Marketing Ltd.) was later merged with M/s. Kailash Auto Finance Ltd. as per the order of the Hon'ble High Court of Allahabad dated ....
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....nvestigation, I am of the opinion that the unscrupulous actions of few players exploiting the loopholes of the Stock Exchange, if any, cannot be the basis to paint the entire sale/purchase of a scrip like that of M/s. KAFL as bogus without bringing out adverse material specifically against the assessee. One of the main allegations of the AO and the Inspector deputed by him was that the seller of the shares of M/s. Panchsul Marketing Ltd. vide Bill dated 06.03.2013 i.e. M/s. Shivsakti Exports Pvt. Ltd. to assessee HUF is not traceable, the Ld. AR of the assessee pointed out that M/s. Shivsakti Exports Pvt. Ltd. changed their address and the new address is available at the website of Ministry of Corporate Affairs, a copy is found placed at page 18 of paper book. So, it is noted that the AO/Inspector has not made any proper enquiry to even bother to look into the website of Govt. of India, so the adverse inference in this regard is misplaced. 9. The fact of holding the shares 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 hol....
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....ssessee 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 direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied ....
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....t 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 in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal....
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.... liable for the illegal action of the brokers when the entire transactions have been carried out through banking channels duly recorded in the Demat accounts with a Government depository and traded on the stock exchange unless specific evidence emerges that the assessee was in hand in gloves with the broker for committing the unscrupulous activity to launder his own money in the guise of LTCG. 14. There is also nothing on record which could suggest that the assessee gave his own cash and got cheque from the alleged brokers/buyers. The assessment refers also to some third party statement of Shri Sunil Dokania which was admittedly recorded behind the back of the assessee and the assessee has neither been allowed to cross examine this person by the assessee nor the statement of Shri Sunil Dokania furnished to assessee, so the statements even if adverse against the assessee cannot be relied upon by the AO to draw adverse inference against the assessee (Reliance on Hon'ble Supreme Court decision in Andaman Timber (supra) and in the light of the documents to substantiate the claim of LTCG, which has not been found fault with by the AO. 15. Let us look at certain judicial decisions on s....
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....f 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 Association Ltd. on 23rd July, 2003....
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....IT (2006) 205 CTR (P & H) 624 distinguished" 18. The Co-ordinate Bench of Ahmedabad in the case of Smt. Sunita Jalan Vs. ITO in ITA Nos. 501 & 502/Ahd/2016 dated 09.03.2017 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....
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....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 that the shares were never wi....