TaxTMI 
TaxTMI 
2020 (4) TMI 161
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.... defects in those appeals (ITA Nos. 416-422/Kol/2019). But the assessee's without trying to cure the defects, had filed another new set of appeals (seven in numbers) which was numbered as ITA Nos. 856-862/Kol/2019. Though there ought to have been only seven appeals, due to the aforesaid action seven more appeals have been filed which means fourteen appeals are altogether listed and heard together. Since the later filed appeals i.e. ITA Nos. 856-862/Kol/2019 have been found to be mistakenly filed, so they are allowed to be withdrawn. 3. Coming to the lead case, i.e. in respect of ITA No. 416/Kol/2019 in Arun Kumar Maheswari Vs. ITO for AY 2014-15 the facts as noted by the AO are that in this year, the assessee has claimed long term capital gains of Rs. 6,21,030/- on sale of shares of M/s. Essar India Limited (M/s. EIL) and claimed also that this amount is exempt u/s. 10(38) of the Act. The AO noted that the assessee had purchased 15,000 shares of M/s. EIL on 23.03.2012 @ Rs. 10.80 per share for a consideration of Rs. 1,62,150/- and sold the said shares for a gross sale consideration of Rs. 15,66,360/- through transactions on various dates. The AO issued notice u/s. 133(6) to t....
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....ice of the stock and it gradually raises (price many time) often it goes 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level, the beneficiary who bought the shares at a nominal price are made to sell it to a dummy company of the operator. For this, unaccounted cash is provided by the beneficiary, which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. According to AO, the Directorate of Investigation, Kolkata investigated transactions in 84 (Eighty Four) such penny stock listed on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny Stock Companies, the entry operators who managed the dummy companies involved in price rigging. According to AO, the Director of Investigation examined the money trails of the transactions and in a large number of transactions trail right from cash deposit account to the beneficiaries account was unearthed. The A.O. has further stated that assessee has also taken ....
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....of LTCG of Rs. 6,21,030/- is bogus and pre-arranged. 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 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. It is noted that the order of Ld. CIT(A) is an ex parte order. However, the Ld. AR of the assessee pointed out that the scrips on which LTCG was derived by the assessee was from the purchase and sale of scrips known as M/s. Essar India Ltd. which scrip has been found to be genuine by this Tribunal vide its order in ITA No. 604/Kol/2018 for AY 2014- 15 in the case of Jagmohan Agarwal Vs. ACIT dated 05.09.2018. Therefore, there is no worthwhile reason to send these appeals back to the Ld. CIT(A) which will be an abuse of the process....
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....tries 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 the ITAT, Mumbai had relied upon and followed the judgment of Hon'ble Bombay High Court in Sanjay Bimalchand Jain v. PCIT, Order dated 10.04.2017 (Bom.), being judgment of Jurisdictional High Court. However, in this case, the AO observed that the assessee had taken entries and paid cash of equivalent amount and received back by cheque. And on the basis of such adverse inference, the Tribunal confirmed the addition made by the AO. However, in the present case in hand, there is no such finding made by the AO. Further. It is noted that the abovementioned judgment of ITAT, Mumbai Bench has been considered and distinguished by the ITAT, Kolkata Benches and other Benches of the Tribunal, inter-ali....
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....8 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 applicable in the present case. Further, it is noted that the abovementioned judgment of Tribunal, Mumbai Bench was considered/distinguished by the Mumbai ITAT in its following judgments while allowing similar issue in favour of the Assessee: a. DCIT vs. Anil Kainya [ ITA Nos.4077 & 4078/MUM/2013, Order dt. 22.03.16 Mum ITAT)] b. Anjali Pandit vs. ACIT [2017] 88 taxmann.com 657 (Mumbai - Trib.) Further, it is noted that lthe said judgment has been considered/distinguished by the Kolkata and other Benches of the Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the assessee. a. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.....
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....nted 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 abovementioned judgment has been considered/distinguished by this Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the Assessee: a. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.06.2019 (KoI ITAT)] b. Yogesh Dalmia vs. ACIT [ITA No.113/Kol/2018, Order dt. 03.06.2019 (KoI ITAT)] c. Navin Kumar Kajaria vs. ACIT [ITA No.1254-55/Kol/2018, Order dt. 03.04.2019 (Kol- Trib) d. Soumitra Choudhury vs. ACIT [ITA No.256/Kol/2019, Order dt. 15.03.2019 (Kol ITAT)] 6. Coming to the case of Abhimanyu Soin [2018-TIOL-733-ITAT-CHD - The Chandigarh Bench of Tribunal had confirmed the addition made by AO after observing that "....
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....us 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. Further this judgment has been considered and distinguished by this Tribunal and other Benches of the Tribunal, inter-alia, in the following cases while allowing similar issue in favour of the Assessee: a. Kaushalya Agarwal vs. ITO [ITA No.194/Kol/2018, Order dt. 03.06.2019 (Kol, ITAT)] b. Kamal Singh Kundalia vs. ITO [ITA No.2359/Kol/2017, Order dt. 08.05.2019 (Kol ITAT)] c. Meenu Goel vs. ITO [2018] 94 taxmann.com 158 (Del-Trib) 9. Coming to the case of CIT vs. Sunita Dhadda (Hon'ble Supreme Court judgment dated 06.06.2018), it is noted that this judgment relied upon by the department has no application in the facts of the instant case. The contention of Ld. DR that matter should ....
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....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) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738-ITA No. 22 of 2009, Order dt. 29.4.09] 11. Coming to the cases given below Prem Jain vs. ITO [ITAT, Delhi, Order dt. 22.03.2018] Sanjay Bimalchand Jain vs. PCIT [2018] 89 taxmann.com 196 (Bom) The decisions of these cases had been relied upon by D/R to contend that gains from sale of shares should be assessed as "Business income" and not under the head "Capital Gains". It is noted that the Learned D/R is trying to put forward a completely new argument which do not emanate out of ....
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....ned 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 involved in synchronized trade to manipulate the prices of shares. There is no such admission by the Assessee in the instant case that it has involved in any price manipulation and/or any dubious tax planning. Moreover, the Hon'ble Apex Court had set aside the action initiated by SEBI in the case of brokers as there was no evidence on record to show involvement of the said brokers. Similarly in the instant cases the department had failed to bring on record any evidence whatsoever to show that the Assessee was involved in any price manipulations. Thus the judgment of the Hon'ble Supreme Court is clearly distinguishable on facts. The said judgment had been held to be distinguishable by the ITAT, Kolkata Benches in t....
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.... of Rs. 1,62,496/- has been paid to M/s. Eureka Stock & Share Broking Services Ltd. It is also noted that the shares were duly de-materialized in the assessee's account with the registered broker is found placed at page 14 of the paper book wherein entry dated is stated to be 27.03.2012. It is also noted that the assessee had sold all the above shares for a total consideration of Rs. 9 lakhs on two occasions, first on 09.12.2013 @ Rs. 45.50 per share of 8000 shares and on 20.01.2014 of 7000 shares @ Rs. 60/- per share. Contract note evidencing sale is found placed at page 16 of the paper book. The bank statement evidencing transfer of sale consideration is found placed at page 9 of the paper book. The assessee having fulfilled the conditions required to claim LTCG thus claimed LTCG of Rs. 6,21,030/- after duly remitting STT. It is noted that the assessee has purchased and sold the shares of M/s. EIL through on line platform of stock exchange. It is noted that the AO has disallowed the LTCG claim of assessee on the reason of certain investigation report as well as that of statement of certain brokers. However, it was brought to my notice that despite assessee asking for the name of ....
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....O that the earning in the said scrips has been reported as suspicious by Investigation Wing and accordingly the case of the assessee was selected for scrutiny. On the basis of documents submitted during the course of assessment proceedings and the data available on various stock market website in respect of the said scrip, the AO analysed the fundamentals, graphs and the price movement of the said scrip during the period under consideration. While analysing the stock of M/s. Esaar India Ltd. with benchmark index, viz., sensex, the A.O. discussed about abnormal price rise of shares of M/s. Unno Industries and had also at various places referred to the share of M/s Kailash Auto. Taking note of these cases also the AO concluded the fact that the transactions by the assessee in the scrip transaction were rigged. The AO had also stated that he had obtained information u/s 133(6) about 'Exit Providers' or 'Counter Parties' from Bombay Stock Exchange (BSE), which corresponds to the purchase and sale transactions of the assessee in the said scrip. According to AO, the said information contained the names of 'M/s. East India Securities Ltd.' and 'M/s. GCM Securit....
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.... LTCG and held it to be a bogus transaction and added back the entire amount of sale proceeds of Rs. 11 ,49,4251-[ Rs. 46 per share for 25000] as unexplained cash credit u/s 68 of the Act. It was pointed out to us by the Ld. AR that had there been an involvement of the appellant in such scam, then the appellant should have sold it a price of Rs. 67.95 per share (on 21.08.2014), being the highest price of which the shares of the said company was traded, so the theory of collusion and suspicious transaction fails. 5. Further according to ld AR, in the show cause notices and the assessment order, the AO had stated the fact that the information prepared by the DIT (Inv.) were based on various enquiries made by it and various statements recorded by investigation team under oath. However, the Ld. AR pointed out that the AO had failed to provide the copies of the same to the assessee. Further, according to Ld. AR, the AO had not brought on record any material/evidence against the assessee based on which he was of the view that the amount of LTCG earned by the appellant were all bogus. The Ld. AR drew our attention to the following judicial decisions, wherein it had been ....
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....n the basis of suspicion and surmise, which resulted from purported generalized information received from Investigation Wing. In this regard, ld AR placed reliance on following judicial pronouncements wherein it was stated that addition cannot be made merely on the basis of presumption, assumption and suspicion which cannot take the shape of proof:- 8. The Ld. AR drew our attention to the decision of Hon'ble Supreme Court in the case of K.P. Varghese v. Income Tax Officer (SC) (1981) 131 ITR 0597 wherein the Hon'ble Apex Court held that - "the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such on understatement or concealment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drown that the assessee has not correctly declared or disclosed the consideration received by him and there is on understatement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration received by the as....
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.... "the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him and there is no concealment or suppression of the consideration." 14. The Ld. AR drew our attention to the decision of the Tribunal in the case of Manish Kumar Baid, Mahendra Kumar Baid vs ACIT (ITA No. 1236/1237/Kol/2017 dated 18.08.2017) (A.Y. 2014-15) wherein it has been held that:- We find lot of force in the arguments of the Ld. AR that the AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct and prepo....
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....ve that the assessee was in any way involved in circular trading to rig the value of shares. The only thing the AO had done is reproduce the extract of general details received from BSE. Further, the AO was also in possession of statement of operators of counter party member who had accepted their role in managed and synchronized transactions. During the course of assessment proceedings the AO neither apprised the appellant of such information collected u/s 133(6) nor provided the copies of the same for rebuttal. Further, the copies of statement and an opportunity for cross examination were also not granted to the appellant, thereby violating the principles of natural justice. It was pointed out by the ld. AR that the assessee had nothing to do with share transaction of M/s. Kailash Auto and M/s. Unno Industries. According to Ld. AR, the AO had referred to these two companies' share transactions which are irrelevant in the case of assessee and was only to create suspicion and reference of these companies exposes nonapplication of mind of AO. Likewise, the names of two operators are mentioned at page 9 of the order of AO i.e. of Shri L. K. Agarwal and Shri Gautam Bose whose....
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.... reason, the claim of the assessee should not be denied, specially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied," Similarly we also find guidance and support from the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Emerald Commercial Ltd. reported in 120 taxman 282 whereby it was observed as under : "Business income-Business loss-Loss on sale of shares-Details of purchase and sale of shares furnished-Payment and receipts were through account payee cheque-identity of seller and purchaser not disputed-Claim for loss could not be disallowed on the mere ground that the assessee failed to produce the brokers for verification of the transaction-Finding of the Tribunal that the loss incurred by the assessee in the share dealings is genuine and is allowable was based on material and was not perverse-ClT vs. Carbo Industrial Holdings Ltd.(2000) 161 CTR (Cal) 282 : (2000) 244 lTR 422 (Cal) followed" Respectfully following the a....
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....of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment k appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed." 9.4. We note that the Id. 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 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)/A.O. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares....
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....s resulting in LTCG. These evidences were neither found to by the AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the 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 A.O. 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. It is relevant to rely on the decision of the Calcutta High Court in the case of CIT vs Alpine Investment (ITA No. 620 of 26.08.2008). In this case the shares were transacted through recognized stock brokers and through regular bank channel and supported by contract no....
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....ransactions so as to reduce the quantum of income liable for tax might have been the view expressed by the 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 ld AO was misplaced and not substantiated. CIT vs Shreyashi Ganguli (ITA No. (Cal HC) : 196 of 2012) 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 over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. CIT vs Runata Properties Pvt. Ltd. (ITA No. 105 of 2016) (Cal HC):- In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal, wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis ....
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....ook and ultimately these shares were sold through M/s. R. L. Agarwala Capital Market Ltd. through the BSE and on such sale, Security Transaction Tax was duly paid. Payments were duly received in the bank account of the assessee. The transactions were all through a registered broker and through BSE since the scrips of M/s. Essar India Pvt. Ltd. was a listed company in BSE backed by a contract note (page 2 and 8&9 of the paper book) and shares were credited in the de-mat accounts (page 13 and 14 of the paper book) and duly reflected in the books of account. In the light of these evidences on record we are of the opinion that the purchase and sale of shares per-se cannot be held to be bad. 30. We note that the Ld. CIT(A) has disbelieved or discarded the evidence produced by the assessee to substantiate that the purchase and sale of shares of M/s. Essar India Pvt. Ltd. through the BSE, through recognized stock broker and through banking channel was genuine by observing as under: "I also find that all the submissions made by the appellant during the course of the appeal point towards the elaborate documentation, meaning thereby that the appellant has produced papers re....
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....tements of Shri L.K. Agarwal and Shri Goutam Bose and Shri S. Dokania. However these persons statements have neither been reproduced in the assessment order nor the assessee given a copy of the statements to rebut. So the action of both AO and ld CIT(A) referring to statements which were purportedly recorded under oath by the Investigation Wing cannot be made the basis for drawing adverse inference against the assessee. Thus the action of AO to refer to certain purported statements of the three individuals without establishing any nexus with the assessee can at best mislead or create suspicion and reference to irrelevant material itself makes the order bad. Not only that the AO has not even bothered to give a copy of the same to the assessee and did not give an opportunity to the assessee to cross examine those persons itself vitiates the action of the AO and the order passed by him is therefore fragile for violation of natural justice and null in the eyes of law as held by the Hon'ble Supreme Court in Andaman Timber Industries Vs. Commissioner of Central Excise in Civil Appeal No. 4228 of 2006 dated 16.11.2015. These purported statement though the contents of which neither we are ....
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....ger from the broker for my transactions in shares of Essar India Ltd. is enclosed(Pages 10 and 11 of paper book) vi) The relevant copy of Bank Statement reflecting the receipts from such sale was produced before us and CIT(A)/AO. vii) The funds on sale proceeds were utilized for purchase of 10,000 shares of Mangalore Chemicals & Fertilizers Ltd., in IPO application of Power Grid Ltd. and other investment in shares. 33. We find force in the contentions of the ld. AR that the AO and CIT(A) was not justified in rejecting the claim of the assessee on the basis of theory of suspicious transactions surrounding circumstance, human conduct and preponderance of probability without bringing on record any relevant material or 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....
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....n against the assessee or the brokers or the company in question. In absence of any evidence to back the conclusion of AO/CIT(A), it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transitions. It is also pertinent to note that the assessee has purchased the stocks through BSE and through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Bombay Stock Exchange, and is supported by valid contract notes as per law; and in similar case, the Hon'ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that "on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It is the assessee's contention that even though there are allegations against the broker, and for that reason the assessee cannot be held liable on this point, the tribunal held ....
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.... is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows : "It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed.....