TaxTMI 
TaxTMI 
2019 (8) TMI 1322
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....L) claiming for LTCG exemption u/s. 10(38) of the Act treating the same as unexplained cash credit and confirming the addition of Rs. 89,596/- on account of payment of commission u/s. 69 of the Act. 3. The brief facts of the issue are that the assessee claimed long term capital gains of Rs. 17,91,918/- . The AO found that the assessee has claimed LTCG of Rs. 17,91,918/- and claimed exemption u/s. 10(38) of the Act. According to AO, the assessee has bought 6000 shares of M/s. JIL on 12.10.2011 @ Rs. 10/- each for a total consideration of Rs. 60,000/-. And later, the assessee sold the shares in this assessment year (AY) as under: Date No. of shares Rate per share Total sale consideration 23.06.2014 1500 Rs. 311/- Rs. 4,66,500 03.07.2014 2000 Rs. 309/- Rs. 6,18,000 07.07.2014 2500 Rs. 312/- Rs. 7,80,000 Rs. 18,64,500 The assessee had sold these shares through M/s. Guiness Securities Ltd. which is a registered broker at the BSE and claimed LTCG of Rs. 17,91,918/-. According to AO, the scrip of M/s. JIL is amongst the 84 penny stocks which were engaged in artificial rigging of prices and was meant ....
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....d, however letter returned back with postal remark 'moved'. As per AO, the assessee after purchasing the scrips of M/s. JIL waited till the completion of 1 (one) year for qualifying the gain (LTCG) as exempted income. According to AO, on reaching the optimum level, assessee sold these shares to the pre-arranged buyers at pre-settled price. Thus, AO concluded that assessee had sold these scripts at predetermined price, pre-determined time and to pre-determined buyer with the help of accommodation entry' providers under the shell of director, share broker etc. to bring his unaccounted income into the regular books of accounts in the form of claim of exemption u/s 10(38) of the Act on LTCG as per provision of Act. Therefore, according to AO, it is a fact that assesee had taken accommodation entry of Rs. 17,91,918/ - by selling listed penny stock of M/s. JIL through the pre-settled transactions under the carpet. In view of the above discussion, according to AO, the claim of LTCG of Rs. 17,91,918/ - having been proved to be bogus, and pre-arranged. Under these circumstances assessee was requested to explain as to why the said sum of Rs. 17,91,918/-should not be treated as cr....
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....rcises any control over M/s. Jackson Investments Ltd. or any so called entry operator. According to Ld. AR, as a matter of fact, the assessee has never indulged in any such activity nor has been part of any modus operandi as stated by the A.O. The assessee has transacted in the shares of M/s. JIL in the normal course of investment like millions of investors do in the stock market. Therefore, according to Ld. AR, the question of alleged conversion of unaccounted money in the form of alleged bogus long term capital gains with the help of many alleged connected parties through price rigging and price manipulations does not arise. According to him, there is no material evidence for the A.O. to conclude what is apparent is not real. In the absence of any link between the assessee and the alleged adverse admissions of the directors and brokers, human probability has been used as a vague and convenient medium for the Department to draw adverse view/conjectures against the assessee. According to Ld. AR, blaming the assessee by vague observations and drawing an adverse inference without any admissible evidence on record, on the part of the lower authorities is not justified in the eyes of l....
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..... Thus, according to Ld. AR, the AO was not justified in assessing the sale proceeds of shares as undisclosed income. He also submitted that in respect of share of M/s. JIL the Coordinate bench of this Tribunal has already accept the scrip of M/s. JIL vide its order dated 28.02.2019 in the case of Omprakash Mundhra & Ors Vs. ITO in ITA No. 2235/Kol/2018. Therefore, he prayed that the appeal both of the assessee's may be allowed. 6. Per contra, the Ld. DR vehemently supported the orders of the lower authorities and urged before the bench to confirm the orders of the lower authorities and explained the modus operandi resorted by the beneficiaries like assessee who launder their unaccounted money through this colourable device and wanted us to uphold the action of Ld. CIT(A) and AO. He also referred to certain case laws which we will refer to infra . 7. I have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing it was brought to my notice by the Ld. AR that this Tribunal in the case of Omprakash Mundhra & Ors Vs. ITO in ITA No. 2235/Kol/2018 (supra) have decided that the scrips of M/s. JIL are not bogus and held that the LTCG ....
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....e returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their shares. vi. The sharp rise in market price of the shares of these entities is not supported by fundamentals of the company or any other genuine factors. vii. An analysis in respect of persons involved in transactions apparently carried out in order to jack up the share prices has been done in respect of 84 companies. It has been noted that many common persons/entities were involved in trading in more than 1 LTCG companies during the period when the shares were made to rise which implies that they had contributed to such price rise. viii. Names of most of the LTCG companies are changed during the period of the scam. ix. Most of the companies split the face value of shares [this is probably ....
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....im of LTCG, and this is clearly been schemed and pre-planned with mala fide intention. Therefore, all these documents are not evidence. e) The transactions are unnatural and highly suspicious. There are grave doubts in the story propounded by the assessee before the authorities below. Banking documents are mere self-serving recitals. 9. Thereafter he referred to a number of judgments relating to human behavior and preponderance of human probabilities and upheld the addition made by the Assessing Officer by relying on what he calls rules of "Suspicious transactions". 10. The assessee in this case has filed the following evidence before the Assessing Officer in support of his contentions:- a) Copies of bills, evidencing purchase of shares b) Copies of contract notes of sale of shares c) Bank statement copies d) Copy of Ledger A/c of broker e) Demat Statement etc. The Assessing Officer has just relied on general observations. No evidence was controverted by the Assessing Officer. 11. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the ca....
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....a conclusion as to whether the claim in genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in quesiton was part of this scam. The chain of events and the live link of the assesee's action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assessee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unve....
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....hat the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However we do not find that, the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess th....
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....le transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,---this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Incometax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The Incometax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the T....
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....ealing with a case under the Central Excise Act, 1944, considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alteram partem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to....
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....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 ex-factory 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. 6. 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 Adju....
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.... This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed." b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No. 292/JP/2017] order dated 06.04.2018 held as under vide Page 9 Para 3: "We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO....
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....t the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT (A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act." Further in Page 15 Para 8.5 of the judgment, it held: "We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT (A)/AO. In the aforesaid facts and circumstances of the case, we hold that the....
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....ssessee u/s 68 of the Act. We therefore direct the AO to delete the addition." f) The BENCH "A" OF KOLKATA ITAT in the case of SHALEEN KHEMANI [ITA No. 1945/Kol/2014] order dated 18.10.2017 held as under vide Page 24 Para 9.3: "We therefore 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 ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the....
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....2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed." i) The Hon'ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: "The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank." j) The Hon'ble Supreme Court in the case of PCIT vs. Teju Rohitkumar Kapadia order dated 04.05.2018 upheld the followi....
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....on of Rs. 60,000/- from M/s. Uttam Commodities Pvt. Ltd. (copy of the purchase bill, money receipt, share transfer advice and share certificate are available in the paper book at pages 9 to 13. Thereafter, in the relevant year the assessee sold 1500 shares @ Rs. 311/- on 23.06.2014, 2000 shares @ Rs. 309/- on 03.07.2014 and 2500 shares @ Rs. 312/- through M/s. Guiness Securities Ltd. which is a registered broker at the BSE and claimed LTCG of Rs. 17,91,918/-. Contract notes in connection with sale of shares along with bank statement reflecting the receipt of sale consideration and demat statement were produced before the lower authorities and are available in the paper book page nos. 14 to 22. I note that the A.O. has nowhere in the assessment order referred to any material which can prove the complicity of assessee either in the price rigging or in the alleged accommodation entry operation. Nothing on record/assessment order could show that assessee was connected with M/s. Jackson Investments Ltd. or their promoters, directors and any other person who exercises any control over M/s. Jackson Investments Ltd. or any so called entry operator. Other than adverse assumptions there i....
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....Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib) 2. Ritu Sanjay Mantry vs. ITO - ITA No.2003/Mum/2017, Order dt. 9th February, 2018 - ITAT Mumbai In this case is that was reopened by the AO on the basis of information received from office of DGIT (C&IB), New Delhi that the assessee had taken accommodation entry from M/s. Magasagar Securities Pvt. Ltd. (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of Rs. 10,32,289/-. Subsequently the assessment was completed u/s. 147 r.w.s. 143(3) of the Act after making an addition of Rs. 10,39,289/- on account of bogus share transactions and Rs. 20,786/- being commission paid to the broker for arranging accommodation entries in the form of share transactions. The AO had given a finding that the assessee had taken entries from Mahasagar Securities Pvt. Ltd. involved in the shares scam case for Rs. 10,39,289/- for bogus speculation profit during the financial year 2007 -08. It was further found by the AO that the assessee has paid cash of equivalent amount and received back by cheque and bogus contract notes and bills for the transactions not actually rooted through stock exchange. It is noted that ....
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....in May 2004, went up to as much as from Rs. 465 to Rs. 489 in July, 2005, i.e., just over years' time. Each of these incidents matched with that which could be expected in a case of a transaction in a penny stock, the modus operandi of the transactions in which was also listed by the AO. Accordingly, relying on the decisions by the apex court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC); Durga Prasad More v. CIT [1971] 182 ITR 540 (SC) and MC. Dowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC), besides by the Tribunal in the case of Asstt. CIT v. Som Nath Maini [2006] 7 SOT 202 (Chd.), he assessed the impugned credit of Rs. 12.15 lacs as unexplained income u/s. 68 of the Act. The Tribunal confirmed the addition observing that the purchase of shares was off market purchase not reported in the stock exchange. Further, it was observed by the Tribunal that the purchase was through a back date contract note in cash and, there was no trail. Thus it is noted that Tribunal in this case confirmed the addition on a factual finding that the purchase was through a back dated contract note in cash and, there was no trail. This fact is not appli....
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....cts in this case as the assessee earned long-term capital gain on sale of shares of MARL and claimed exemption on it under section 10(38). The Assessing Officer relying upon the report of the investigation wing, SEBI report and findings/observations of the SIT, concluded that exemption under section 10(38) claimed by the assessee was not acceptable and the act of the assessee in purchasing the penny stock shares and sale of fee within the ambit of adventure in the nature of trade. Consequently, amount in question was liable to be taxed under the head 'business income'. The Tribunal confirmed the addition by observing that the department had brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of account through long-term capital gain by adopting such method. It is noted that in the aforesaid case, the Tribunal confirmed the addition on a factua1 finding that the department had brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of account through long-term capital gain by adopting such method. This fact is not applicable in the present case. Further, the ....
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....of Chandan Gupta Vs. CIT (2015) 54 taxmann.com 10 (P&H) - The Hon'ble Punjab & Haryana High Court had confirmed the addition made by Assessing Officer on the basis of finding of fact by the Tribunal that the assessee had failed to prove the genuineness of the transaction of sale and purchase of shares. The relevant observation is as under: " ..... On appreciation of the evidence, the Tribunal held that the assessee had failed to prove the genuineness of the transaction of sale and purchase of shares. Once the transaction of purchase and sale was found to be bogus then the sale proceeds had to be added as income of the assessee under Section 68 of the Act because the money received on the basis of bogus transaction had been credited by the assessee in the books of account which remained unexplained. 9. In view of the findings of fact recorded by the authorities below which could not be demonstrated to be erroneous or perverse in any manner, no interference is called for. " However, in the instant case of the Assessee company all relevant documents were furnished to support and prove beyond all doubts, purchases as well as sale of shares. Furth....
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....set aside in the specific facts and circumstances of each of the cases wherein all facts were not available on record and/or where in the words of the D/R the "AO has botched up enquiry". However, in the case in hand there is no occasion for setting aside the matter in as much as the assessee had furnished all relevant documents, materials and/or evidence to support its transactions of purchase and as well as sale of shares and the AO had failed to point out any defect and/or lacuna in the said documents, materials and/or evidence. Further, this Tribunal in its orders had decided similar issue in favour of the assessee by relying on binding judicial pronouncements. Reference is also made to the recent judgment dated 1st July, 2019 rendered by the Tribunal in the case of Aparna Miwsra, supra wherein the Tribunal had relied upon the following jurisdictional Calcutta High Court judgments to decide similar issue in favour of the assessee. i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] ii)CIT vs. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] iv....
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....CIT [MP High Court, Order dt. 01.03.2018] Sourabh Khandelwal vs. PCIT [MP High Court, Order dt. 01.03.2018] It is noted that in all of these cases relates to imposition of penalty under section 271(1)(c) of the Act in the facts where the Assessee had withdrawn/surrendered his/her claim of exempt L TCG u/s. 10(38) of the Act and paid taxes on the gains arising from sale of shares. All these judgments are irrelevant and has no application to the facts of the instant case before the Tribunal. 13. Coming to the case of SEBI v. Rakhi Trading P. Ltd [Civil Appeal No.1969 of 2011, Judgment dated 8th February, 2018 (of the Hon'ble Supreme Court ) It is noted that the Hon'ble Supreme Court was concerned with a case where SEBI had initiated actions against few traders and brokers for violation of Regulations 3(a), (b) and (c) and 4 (1), (2)(a) and (b) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("the PFUTP Regulations"). In the said case, the Hon'ble Apex Court upheld the action initiated in the case of traders as the said traders have admitted of being ....