AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 529
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....in after 'the Act'). 4. Brief facts of the case is that the assessee has earned LTC gain Rs. 12,57,809/- by selling of share of M/s. TTML. and the same has been claimed as exempt u/s 10(38) of the Act. The AO observed that an investigation was conducted on a number of penny stock companies by the Directorate of Investigation, Kolkata and total 84 penny stock companies were identified and worked upon. Out of 84 penny stock companies which have been used for generating bogus LTCG i.e. M/s. TTML. is one of the same. According to AO the basic trade pattern of all the 84 scripts are same. A close view of all such data suggested that there is a common pattern in the trading of such scripts and the pattern is that they represent a bell shape in their trading. It means first, their prices start from low range, then it raises rapidly, stays there for a while and then it decreases more rapidly. Thus trade pattern makes a bell shape. Apart from that from the balance sheet of the penny stocks it will be found that they have no actual financial credentials to support their share movement pattern. Almost all the companies have no fixed asset, no turnover, no profitability and they did not pay....
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....nts, the assessee has claimed to have exempt income of Rs. 12,57,809/- u/s 10(38) of the Act. Thus, we note that the assessee has purchased the shares through online through registered brokers and sold the same also in the Bombay Stock Exchange through the registered brokers and the shares were duly dematerialized and the purchase/sale consideration was through the banking channel. We note that the Tribunal had the occasion to consider the claim of the assessee in the same scrips (M/s. TTML) in a similar case that of Rohit Jalan (supra) wherein the Tribunal allowed the claim holding that M/s. TTML scrips are not bogus and it was a genuine scrip and has held as under: "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 be bogus and that action of AO has been confirmed by the Ld. CIT(A) on ....
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....e 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 asked the department to show some material leave along evidence to s....
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....rder 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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....ed with the BSE in 1996 and it was 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 create....
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....id, for collection of Rs. 7.5 cr by way of preferential 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 ....
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....was made after one year of holding and after payment of STT and transactions 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 h....
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....nclusion that assessee indulged along with persons' statement recorded (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 income-receipt. 18. From the afo....
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....eme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to 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....
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....le of shares contract note in the prescribed form was issued by the broker. The contract note included relevant information such as date and time of transaction, contract note 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 ass....
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....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 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 ....
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....t is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed 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....
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....tion. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there 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 a....
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....en the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant 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 apa....
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....sactions were genuine and therefore, no adverse inference should be drawn. 18. In the light of the decisions of the Hon'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." 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 Jurisdi....
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....ansactions 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 of evidence o....
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....ts 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 & 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) ....
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....dgments 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. CIT - [2006] 6 SOT 247 (Mum) 34. We note that the ld. D.R. had heavily relied upon the decision of 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 wa....