TaxTMI 
TaxTMI 
2020 (11) TMI 650
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....Jaipur has erred in confirming the addition of Rs. 7,51,07,591/- made by the ACIT, Circle -1 by treating the long term capital gains exempt under section 10(38) on sale of shares of M/s Sunrise Asian Ltd as bogus and thereby considering the same as income from other sources." 3. The assessee is an individual who has filed his return of income for the year under consideration on 06.12.2014 declaring total taxable income of Rs. 62,94620/-. During the scrutiny assessment, the Assessing officer noted that the assessee has declared exempt income under section 10(38) of the Act of Rs. 7,51,07,591/- on purchase and sale of shares of SUN ASIAN (Scrip Code: 506615) and the issue of genuineness of the transaction of Long Term Capital Gain from purchase and sale of said shares was taken up. The AO observed that this is a transaction of purchase and sale of penny stock in the nature of obtaining the accommodation entries of bogus Long Term Capital Gain. The AO, after discussing the modus operandi of various entry providers as detected by the Investigation Wing, Kolkata and other places, statement recorded during search proceedings u/s 132, analysis of financials and price movement of the sh....
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....ssessee and held that the Revenue has strong evidences against the assessee that the long term capital gains booked by the assessee were pre-arranged method to evade taxes and launder money. The AO has supported his findings by decision of the Coordinate Bench in case of Ratnakar M. Pujari vs ITO (ITA No. 995/Mum/2012). The AO consequently made an addition of Rs. 7,51,07591/- by treating the same as bogus LTCG claimed exempt u/s 10(38) of the Act. The assessee challenged the action of the AO before the ld. CIT (A) who has confirmed the findings of the AO and against the said order of the ld. CIT (A), the assessee has filed the present appeal. 4. During the course of hearing, the ld. A/R of the assessee has submitted that the AO has made the addition on the basis of assumption and presumption without bringing on record any material to show that the transactions of sales in the shares of M/s Sunrise Asia Ltd through Stock Exchange is not genuine. The ld. A/R has submitted that the assessee has produced all the relevant records and documentary evidences in support of the purchase and sale of the shares. He has referred to the application made by the assessee and subsequent allotmen....
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....us no bearing on the matter under consideration so far as the transaction of purchase and sale of the shares made by the assessee. The ld. A/R has further submitted that since the shares were purchased in the earlier financial 2011-12 and are duly reflected in the books of account of the assessee as on 31st March, 2012 and on 31st March, 2013, therefore, when the assessee has produced all the relevant documentary evidences which included allotment advice, payment through banking channel, Demat account showing the holding of shares by the assessee, books of account as on 31st March, 2012 and 31st March, 2013 wherein the assessee has duly shown the shares in his hand, then the transaction of purchase cannot be doubted. Further, the sales of the shares are through Stock Exchange and the sale consideration has been received by the assessee directly in the bank account. Thus the ld. A/R has submitted that once the assessee has proved the transaction with the support of documentary evidence as well as the other undisputed facts, then in the absence of any contrary material, the same cannot be treated as bogus. 5. It was submitted by the ld A/R that the AO has not brought any evidence ....
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....ect with the assessee transaction. 6. It was further submitted that the findings of the AO are merely on surmises and conjectures. The ld. AO did not being on record assessee's nexus with any of the person of whom the statements have been recorded.Nothing has been brought on record to show that the persons investigated have named that the assessee was in collusion with them.The ld. AO did not bring on record any evidence showing any nexus of assessee with any of the so called entry operator, exit operator.In the assessee case, assessee has just dealt with his share broker, M/ s Mehta Equities which has nowhere been named in the said study report as part of the entry operator/ exit operator. Even no nexus of the said broker has been pointed out with any of the parties referred to by assessing officer. In this case, the AO at best could have considered the investigation report as a starting point of Investigation. The report only informed the AO that some persons may have misused the scrip: for the purpose of collusive transactions. The AO was duty bound to make inquiry from all concerned parties relating to the transactions and then to collect evidences that the transaction e....
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....perception has been drawn by ld. AO in respect of astronomical rise in share price. The ld. AO in his order, doubted the price rise of M/s SAL over a very short period of just 15-18 month. He also mentioned that "there is nothing worthwhile to mention on the front of assets and net worth of the company as well, to conclude that it could command such high premiums like blue chip companies. It was also found that during the period of astronomical rise in shares price of the scrip there was no corporate announcement or big order or any such news which could result into such frenzy in the scrip price. The price of the scrip in the secondary market mainly depends upon the EPS, the business health of a company or some new development in the company which promises bright future for the shareholder." It was submitted that the facts that M/s SAL was turned from loss making to profit earning itself demonstrates the facts that there was potential in SAL. Further, the turnover of the company has been substantially increasing from year to year. As seen in the assessment order, the turnover increases by 447 times at Rs. 169.89 Crore from Rs. 0.38 crore in FY 2011-12. Consequently the resultan....
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....levant facts in the assessment order as well as the modus operandi of various entry providers as detected by the Department during the investigation carried out by the Directorate of Investigation, Kolkata, Delhi etc. and which has been upheld by the ld CIT(A) by passing a detailed order. Thus it comes to the light that large scale manipulation has been done in the market price of shares of certain companies listed on Bombay Stock Exchange by a group of persons working as syndicate for the purpose of providing entries of tax exempt bogus Long Term Capital Gains to large number of beneficiaries in lieu of unaccounted cash. Thus, in order to convert black money into white without payment of income-tax, a large number of persons are availing accommodation entries of bogus Long Term Capital Gains. The ld. D/R has submitted that the AO has discussed each and every aspect of the modus operandi of the entry providers under which the beneficiaries are asked to buy some shares of pre-determined penny stock company controlled by them at a very nominal price mostly off-line through preferential allotment. The beneficiaries hold the shares for one year to avail the Long Term Capital Gain exemp....
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....dgment of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court reported in 112 taxmann.com 330 (SC). Further, reliance was placed on the Hon'ble Guhati High Court's decision in case of CIT vs Smt. Sanghamitra Bharali [2014] 50 taxmann.com 47. It was further submitted that in case of Pooja Agarwal and other cases relied upon by the ld A/R, the decisions were mostly based on the evidences in the form of contract notes, transaction on the stock exchange and payments through banking channels, however, the surrounding circumstances have not been appreciated therein. 11. The ld A/R in his rejoinder submitted that the decision relied upon by the ld. D/R in case of Suman Poddar vs. ITO (supra) is not applicable in the facts of the assessee's case as in the said case it was a finding of fact by the Tribunal holding that the assessee has failed to produce any evidence of actual sale except the Contract Notes issued by the share broker whereas in the case of the assessee, the assessee produced all the documentary evidences right from allotment of shares, holding in Demat account, payment of purchase consideration as well as receipt of the sale consideration through ....
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....These observations of the AO in the assessment order cannot constitute any tangible material or evidence to show that the transaction of the assessee is bogus being an accommodation entry. The AO in the show cause notice has stated that information has been received from the Investigation Wing, Kolkata vide letter dated 27.04.2015 that Sunrise Asian Ltd is engaged in giving entries of bogus LTCG and further, enquiries were made in the matter and it was found that BSE vide notice No. 2016110726 has declared Sunrise Asian Ltd to be suspended due to direction from SEBI. In reply to the show-cause, the assessee vide letter dated 13.12.2016 has specifically requested for such information/documents/statements and details of enquiry which has been conducted by the AO as apparent from his reply and the contents thereof read as under: "This refers to your Show Cause Notice (SCN) dated 08.12.2016 wherein your goodself has asked the assessee to justify as to why the Long Term Capital Gain (LTCG) and the Investment made by the assessee in the transactions of Equity Shares of M/s Sunrise Asian Ltd. (Sunrise) should not be treated as bogus and added back to the income of the assessee. I....
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....y of accommodation entry. iv) Nothing has been shown that the information refers to any material showing record of cash transaction entered in to by the assessee in lieu of receiving consideration for sale/transfer of shares of Sunrise Asian Ltd. v) Your goodself appears to neither made any further enquiry over and above information received nor applied 'any mind on theinformation received so as to make a conclusive connection of the same with the assessee's transaction. vi) It appears that your goodself has some generalise information in hand rather than any specific information pertaining to assessee's transaction. If your goodself has any information in this regard, it is requested to kindly provide the same, otherwise, in absence of any such information no addition can be made by treating the captioned transaction as non genuine transaction. vii) Even if in the departmental actions, it is found that certain transaction in shares of Sunrise Asian Ltd are non genuine, the said finding by itself cannot be a reason' for concluding that the assessee's transaction is also not genuine unless some concrete and specific evidence is....
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....al justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner as based upon the statements given by the aforesaid two witnesses. Even when 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 as 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. 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 could not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was no for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealer and what extraction the appellant wanted from them. 7. As mentioned above, the appel....
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....lated transaction of purchase and sale of shares by the assessee of M/s. Sunrise Asian Ltd but the assessee has been regularly purchasing and selling the shares as it is evident from the details of the holding of various shares as reflected in the financial statements as on 31st March, 2013 as under :- 15. Thus as on 31.03.2013, the assessee was holding the shares of about 12 companies which include shares of M/s. SantoshimaTradelinks Ltdworth Rs. 31,68,000/- which were acquired in the financial year 2011-12 and similarly reflected in the balance sheet as on 31.03.2012. We find that the assessee has duly reflected all these shares in the Balance Sheet as on 31.03.2012 as well as 31.03.2013 and the return of income for the assessment year 2012-13 and 2013-14 was also filed in time before the date of sale of the shares starting September 2013 onwards in various lots till March 2014. Thus it is clear that 158400 shares acquired by the assessee on 08.10.2011 were reflected in the Balance Sheet as on 31st March, 2013. We further note that the assessee produced the copy of allotment advice of these shares issued by the company along with the bank statement showing the purchase conside....
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....he finding of the Tribunal and finally observed in para 8 as under :- " 8. From the above extract, it would be seen that the Cressanda Solutions Ltd. was in fact identified by the Bombay Stock Exchange as a penny stock being used for obtaining bogus Long Term Capital Gain. No evidence of actual sale except the contract notes issued by the share broker were produced by the assessee. No question of law, therefore arises in the present case and the consistent finding of fact returned against the Appellant are based on evidence on record." Thus it is clear that in the said case the Tribunal's finding is based on the fact that no evidence of actual sale except the contract notes issued by the share broker was produced by the assessee. In those facts, the Hon'ble High Court has held that no question of law arises in the said case. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction. Even if the AO doubted the transaction, then to establish that the transaction is bogus, the AO is required to produce the contrary material evidence so that the evidence produced by the assessee ....
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....Rs. 15,33,160 and added back the same as income from undisclosed sources'. In the context of said facts, it was held by the Hon'ble High Court that where no documents could be produced in support of purchase and sale of shares and the transaction could not be verified, that in such situations, the genuineness of the transaction has to be examined from the surrounding circumstances and has held as under: "35. In the present case, the assessee has not been able to prove that the shares were purchased, on 12th Nov., 1999, in as much as there is no documentary evidence proving the said fact in as much as the said purchase was made in cash. Further, the assessee has also not been able to show that the said shares were listed in the stock market @ Rs. 2.50, on the day of purchase, in as much as the assessee has produced the quotation of the shares as on the date of sale, issued by the Guwahati Stock Exchange, but no such quotation, on the date of purchase, was produced by the assessee. 36. There is no dispute that the sale amount was received by the assessee through bank; but what is disputed is as to whether the long-term 'capital gain', claimed by the asse....
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....39; is based on no evidence. 44. Having considered the facts and the circumstances and the materials available on record, an inference can be reasonably drawn that in reality, the transaction was bogus and it was simply a sort of modus operandi to convert the undisclosed income into a long-term 'capital gain' claiming the same to be exempted." 18. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction which are otherwise independently verifiable being the documents in the shape of allotment advice, bank statements showing payment towards the purchase and sale receipts, Demat account statement reflecting the purchase, conversion and subsequent sale of shares, financial statements and books of account and the return of income relevant for the assessment year pertaining to year of purchase and year of sale, the contract notes reflecting the transaction executed as per price prevailing on the stock exchange. We therefore find that unless these documentary evidence are proved otherwise or any contrary evidence brought on record, the assessee has discharged his onus to prove the ....
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....the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly cannot be doubted because of the reasons that the shares of M/s Oasis Cine Co....
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....ase that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee. 7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary cour....
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....ed the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- "3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards. 4. As regard your opportunity given to us to read the recorded statement of Shri Deepak Patwari and to produce him from the cross examination before your good self, we have to submit that from the reading of the statements of Shri Deepak Patwari it is clear that he has never taken the name of the assessee, nor the a....
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....aid two witnesses. Even when 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 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. 7. 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 ....
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....olesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. 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 assesseecompany had direct control on these bank accounts. Ultimately, the entire case....
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....ea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and 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 mod....
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....e its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." 20. Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon'ble jurisdiction High Court in case of CIT vs. Smt. Pooja Agarwal (supra) has held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similar in the case in ha....
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....der any enquiry or investigation rather the assessee has produced all relevant documentary evidence in support of his purchase and sale transaction through the stock exchange and there is nothing on record that the trading in the scrip has been suspended by SEBI on account of any price manipulation. We therefore find that the assessee satisfies the necessary ingredients and conditions as so specified in section 10(38) of the Act, in terms of transfer of long term capital asset by way of sale of equity shares on which STT has been paid, he shall therefore be eligible for exemption in respect of whole of the income so realized on transfer of such shares as the provisions of section 10(38) talks about any income arising from transfer of such long term capital asset which shall be exempt from tax. 22. Further, the Mumbai Benches of the Tribunal in case of Vijayrattan Balkrishan Mittal vs. DCIT [2020] 121 taxmann.com 100 (Mumbai - Trib) has again discussed this issue in threadbare in para 7 to 37 as under:- "7. We have heard the rival contentions and gone through the facts and circumstances of the case. 8. Before us, the learned Counsel for the assessee Shri Madhur ....
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....di of converting unaccounted money into exempt LTCG. It is stated that a person acquires shares of penny stocks trading at low price either through private placement or on merger of private limited company of which such person is a shareholder with a penny stock company. Thereafter unaccounted money flows to operator's / exit providers who artificially raise the prices of penny stocks on stock exchange. Thereafter, the penny stocks are sold to earn huge exempt LTCG. 10. In regards to the present case the learned Counsel referred to the observations of AO regarding PAL script in his show cause notice: "In the case of M/s Pine Animation Ltd, the Investigation Wing Mumbai has conducted a survey action on M/s Saraf Equity Services Pvt. Ltd. on 03.12.2015, an exit provider in script Pine Animation Ltd. During the course of survey proceedings, statement on oath of Shri. Mandar Dilip Naik, Director of M/s. Saraf Equity Services Pvt. Ltd. was recorded wherein he has stated that M/s. Saraf Equity Services Pvt. Ltd. has indulged in providing exit to the beneficiaries in collusion with operator for making bogus LTCG transactions for a commission of 1%. Further, on v....
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....n such investigation report, without confronting the assessee with the same, renders the assessment bad in law. The Investigation in assessee's case by way of search did not reveal any connection with the findings or evidences as referred to in such reports. 12. He stated that the statements of Anil Khemka & Sanjay Dey and Mandar Naik relied upon the AO does not establish that the assessee has paid any unaccounted money to these parties. None of the replies to the question posed indicate that they received any unaccounted money from the assessee or that they received or utilized the unaccounted money received from the assessee with reference to shares of PAL. It is also not established that they had any arrangement or dealings or relation with the assessee leave apart the alleged accommodation or exit provided who has not stated any dealing with them against the principles of natural justice. Further, as regards the parties listed by AO in the assessment order (abstract reproduced above) as exit providers and entry operators i.e. Dhriti Traders Pvt. Ltd., Dream valley Trading Pvt. Ltd, Dwarkapuri constructions P Ltd, Olympia Sales Agencies P Ltd, Particle Indu....
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.... hereafter does not identify and provide us the identity of persons who have purchased those shares sold by assessee. The assessee has ordered his broker to sell the shares of PAL who in turn sold the shares on BSE platform. The assessee/his broker were not aware about the buyers or their brokers who purchased the shares of PAL sold by the assessee. The allegation of AO in para 7.2 and 7.3 of the Assessment order that that the assessee mainly traded in one script (PAL) which is suspicious is completely incorrect and not supported by facts. During FY 2014-15 (AY 2015-16) the assessee also traded in following scripts:- STCG: ICICI Bank, b) Guj NRE, c) Gitanjali Gems, d) HFCL. E) Wondrella, f) Hind Motors, g) Tata Chem, h) Cr. Griev., i) Coal India, j) Unitech, k) Infosys, L) Tech Mahindra, m) HCL Techno LTCG: Pine animation, b) Sundaram Inv. C) Care rating, d) Kolte Patil, e) IDEA, f) Balmer Lawr, g) S. Clayton, h) GFL Finance, i) Sun Pharma 15. Further, the learned Counsel also narrated the fact that the assessee also incurred losses in few scripts out of the above. With regard to the observations of AO in Para 9 relating to susp....
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.... or their brokers does not have direct relation nor dealing with each other. Nor they know the buying or selling parties or the brokers. The customers deal with their respective brokers and brokers deal with SE or the clearing system. > In nutshell, the buyer's broker makes payment to SE and seller's brokers deliver shares to the SE. Thereafter, settlement is done by clearing system and transfer of amounts online to seller's brokers bank account and shares to buyer's brokers demat account who in turn pays to the sellers and transfers shares to the demat account of the buyer. Hence sellers and buyers does not deal directly or come in contact nor their broker come in direct contact and neither of them know the contra party. > The whole system of buying and selling of shares done on the stock exchange platform is faceless and SE platform deal with brokers only and parties deal with their brokers. For example, shares sold by X through its broker bought by ABCD broker for XYZ or vice a versa are not known to each other. Even the broker does not know, the shares sold by him are delivered to which brokers or which buyer. The broker can act only for the parties who ar....
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....es not affect the transactions of sale of shares by the assessee through proper channel i.e. on the recognized stock exchange through the registered broker and payments were received. He argued that during search itself and in the course of investigation the department had made exhaustive survey and enquiry for these transactions from Geojit and other brokers and nothing incriminating was found against the assessee. The details, documents and third party evidences supporting the sale transactions and payments received have been filed by the assessee. The transactions were done at prices prevailing on the date of transaction and STT was paid on such transactions cleared through exchange clearance system. 20. The learned Counsel further referred to SEBI Investigation in case of PAL. It was argued that in case of PAL, the whole time member of SEBI the market regulator, on a preliminary report of its surveillance department has passed ad interim exparte order no. WTM/RKA/ISD/36/2015 dated 08.05.2015 against PAL and 177 entities including assessee. However, despite no charge against the assessee, the whole time member of the SEBI confirmed the exparte order vide passin....
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....ation's, etc. were observed in respect of 114 entities (including the assessee). The list of 114 entities referred in the SEBI Order also includes following alleged exit providers discussed in show cause notice and referred to in the assessment order as under: - Sr. No. Name of Exit Provider 121 Dhriti Traders PL 127 Dreamvalley Trading FL 162 Signet Vinimay PL 165 Spice Merchants FL 172 WinallVinimay PL 22. These alleged exit providers were also exonerated by the SEBI Order and the remaining alleged exit providers viz. 1) Dwarkapuri Constructions P Ltd., 2) Olympia Sales Agencies P Ltd. and 3) Particle Industries P Ltd. were neither referred in the SEBI ex-parte order dated 08.05.201 5 nor in the final order dated 19.09.2017 which goes to prove that neither the assessee nor the exit providers alleged by the AO were involved in any arrangement or accommodation and hence , allegations of AO are wrong and without any evidence. Copies of SEBI ad-interim ex-parte order dated 08.05.2015, confirmatory order dated 02.06.2016 and final order dated 19.09.2017 are enclosed at pages 217-277 of APB. Subsequently, the SAT disposed-o....
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....assessee provided all the supporting evidences like, share application form, bank statement highlighting the transactions, contract notes, broker's ledger, demat statement Form 10DB, SEBI's final order, SAT Order, etc. 26. However, the AO made addition under section 68 of the Act and CIT(A) confirmed the addition by ignoring all the facts and evidences and without providing any proof of assessee's involvement in the manipulation of price or volume of the shares of the company or pointing out any defect or deficiency in the process of transactions or its eligibility to deduction u/s 10(38) of the Act. We noted that the AO in his Assessment Order in para 7 and 8 has exhaustively mentioned in detail the financials of PAL, preferential allotment of shares, price of PAL, Exit providers, etc. Following paras have been ditto /copied from SEBI ad-interim ex-parte order dated 08.05.2015. Although after Investigation, SEBI in its final order exonerated the assessee and the alleged exit providers but the AO failed to consider the SEBI final order in the assessment order. It means that the AO and CIT(A) also relied on the order of SEBI dated 08.05.2015 mainly for drawing i....
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.... recognized by the market regulator SEBI. The documents have been accepted by the AO. b) Bank statement showing sale proceeds credited by the broker Geojit. Demat account of the assessee showing sold shares debited / transferred to broker. c) The sale consideration is received by assessee from Geojit, a registered broker of SEBI/BSE, with who has been dealing with Geojit for more than 10 years as per contract note directly in the bank account after shares are delivered from demat account and received by the assessee. Copy of demat account and bank statements where sale proceeds are received are submitted as discussed above. Geojit has also been examined and interrogated by the Investigation Department during search proceedings. Geojit's source is BSE settlement system. This explains identity of the creditor and source of money paid by assessee for genuine transaction of sale of shares. d) Sale is done at prevailing price quoted on the BSE. (BSE published quotations daily and rate list of the relevant dates can be produced if required) e) The shares are sold by assessee's broker on BSE platform and not off market to any buyer henc....
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....sessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in the bank account of the assessee and also furnished all evidences comprising contract notes, brokers, banking details in support of the genuineness of the transactions. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence. The AO did not produce any evidence whatsoever to prove the allegation that unaccounted money changed hands between the assessee and the broker or any other person including the alleged exit provider nor proved that the assessee has taken any type of accommodation from any person or so called exit providers to introduce unaccounted money into books by way of LTCG. With the purchase and sale transactions of shares of PAL are proved genuine by third parry evidences - bank, broker; DP-demat account, and in the absence of any material to prove cash changing hands in the transaction, the addition made by the AO under section 68 of the Act, by treating the sale consideration as unexplained, sham, non-genuine....
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....ehavior. We noted that the AO as well as CIT(A) have rejected all evidences filed by the assessee by referring to 'Modus Operandi" of persons for earning long term capital gains which is exempt from Income tax under section 10(38) of the Act. All these observations are general in nature and are applied across the board to all including the assessee. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected by the AO from third parties is confronted to assessee. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, it provided to the assessee. The addition is made based on a general report from the investigation wing. 32. The issue for consideration before us is whether in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine o....
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....preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (SC) the Hon'ble Supreme Court held that, the onus to prove that the apparent is not 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 interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shaw & Bros. v. CIT (1959) [1959] 37 ITR 271 (SC) 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 ....
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....y documents are collusive transactions. 36. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held: "Adverting to the various probabilities which weighed with the ITO might be observed that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by 'S' and the notoriety achieved by 'D' as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the ITO and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amo....
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....f surplus arising out of sale of shares of listed companies and consequent addition under section 69C on the presumption that commission at the rate of 3% was paid is hereby deleted. Accordingly, this common and interconnected issue of the four assessee's appeals is allowed." 23. In the aforesaid decision, it has been held that it is SEBI who monitors and regulates the stock exchanges & stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper & legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the ld. AO has referred to SEBI enquiry against M/s Sunrise Asian Ltd. However, we note that the said enquiry was regarding failure to comply with certain disclosure requirements and therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain and has no bearing in judging the genuineness of the transaction undertaken by the assessee or for th....
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....hes of the Tribunal in case of Anraj Hiralal Shah (HUF) vs ITO (supra) has upheld the claim of the assessee's claim of exemption under section 10(38) of the Act and the relevant findings of the Coordinate Bench contained at Para 8 read as under:- "8. The assessee has earned speculation profit in the immediately preceding year through M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and it has been accepted. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the Dmat account only. Hence the delivery of shares also stand proved. The AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. Accordingly, in the absence of any evidence to implicate the assessee or to prove that the transactions are bogus, I am of the view that the capital gains declared by the a....
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....he addition made by the AO on account of disallowance of interest of Rs. 13,77,391/-. 30. In this regard, the ld AR submitted that the appellant had interest bearing funds of Rs. 1,61,19,649/- and interest free funds of Rs. 3,89,75,382 against which the appellant had invested into income yielding avenues of Rs. 4,22,36,830/- and had invested into non income yielding assets of Rs. 1,28,58,201/-. This shows that the appellant has more income yielding assets as compared to interest bearing funds and hence no allegation can be raised against the appellant that he has diverted his interest bearing funds into non income yielding avenues. It was submitted that during the course of assessment proceedings, the appellant claimed that the interest bearing loans have been utilised as under: 1. For the purpose of earning interest income (shown under income from other sources) to the extent of Rs. 17,65,936 and accordingly an amount of interest cost to this extent have been claimed out of income from other sources. 2. In the partnership firm as capital wherein during the year, the assessee has earned a sum of Rs. 11,24,110/- as interest from M/s Arun Udhyog wherein he is a partner. Furt....