TaxTMI 
TaxTMI 
2021 (2) TMI 540
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.... law confirming addition u/s 69C of the I.T. Act, 1961 of Rs. 47,413/- as commission was provided for sale of shares as accommodation entries." 3. The relevant facts leading to the controversy of treating the long term capital gain on sale of shares as sham/bogus transaction and addition under section 68 of the Act which was sustained by the ld. CIT (A) is that the assessee purchased 4,80,000 shares of face value of Rs. 1/- each of M/s. Careful Projects Advisory Ltd on 24.11.2011 from M/s. Sanskriti Vincom Pvt. Ltd. for a consideration of Rs. 4,80,000/-. The shares were dematerialized and later on the said company M/s. Careful Projects Advisory Ltd. merged with M/s. Kailash Auto Finance Ltd. (KAFL) pursuant to the amalgamation plan approved by the Hon'ble Allahabad High Court vide Judgment dated 9th May, 2013 with effect from 01.04.2012. Pursuant to such amalgamation, the assessee was allotted 4,80,000 shares of M/s. Kailash Auto Finance Ltd. of the face value of Rs. 1/- each and accordingly the same were credited in the demat account of the assessee in lieu of the shares of erstwhile company M/s. Careful Projects Advisory Ltd. Out of total shareholding of 4,80,000 shares, the....
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....ee was allotted 4,80,000 shares of M/s. Kailash Auto Finance Ltd. in lieu of the shares of M/s. Careful Projects Advisory Ltd. which were also credited in the demat account of the assessee on 22.07.2013. Thus the genuineness of the purchase of shares is established by producing all the relevant evidences. The sale of the shares is also not in dispute as these were sold in the Stock Exchange on which STT was paid through M/s. JSEL Ltd., a registered share broker of SEBI. The ld. A/R has referred to the ledger account of the assessee in the books of M/s. JSEL Ltd. at page 1 of the paper book and the Contract Notes for sale of shares at pages 2 to 31 of the paper book. He has also referred to the SBBJ bank statement showing the sale consideration received in the bank account of the assessee. Thus when the assessee was holding 4,80,000 shares since 24.11.2011 and sold only 66,500 shares between 16.01.2014 to 21.01.2014 then holding period of these shares is more than 2 years and it is still holding rest all shares. Hence, the ld. A/R has submitted that when the assessee has purchased the shares of M/s. Careful Projects Advisory Ltd., then the statement of Shri Sunil Dokania recorded b....
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....e modus operandi of such transactions of accommodation entries in the script of paper/bogus companies and thus the unaccounted money of the beneficiary is routed back in the shape of Long Term Capital Gain claimed as exempt under section 10(38) of the IT Act. Though the assessee has purported to have received the sale consideration on sale of shares, however, in reality it was his own cash which he received back through some clandestine deals. The AO has referred to the report of the SIT as well as the statement of Shri Sunil Dokania recorded by the Investigation Wing Kolkata which proved the transaction as sham/bogus and the AO in the assessment proceedings is not required to establish the finding through full-proof documentary evidence but the income tax liability is ascertained only on the basis of material available on record, surrounding circumstances, human conduct and preponderance of probabilities. All these criteria have been satisfied by the AO while passing the assessment order as there were material available with the AO, the circumstances clearly indicated the non-genuineness of the transaction and, therefore when the strict rule of evidence as per Evidence Act is not ....
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....s. Careful Projects Advisory Ltd. of face value of Re. 1/- each for a total consideration of Rs. 4,80,000/-. The payment was reflected in the bank account maintained with State Bank of Bikaner and Jaipur of Rs. 4,80,000/- vide cheque no. 751680 which was cleared on 16.12.2011. Thus the payment of purchase consideration through banking channel is proved from the record which can be verified independently and assessee has no role to manipulate the bank account with State Bank of Bikaner and Jaipur. Thus it is clearly established that the assessee has purchased the shares of M/s. Careful Projects Advisory Ltd on 24.11.2011. These shares were thereafter dematerialized as reflected in the Demat account statement of the assessee as on 29.09.2012. The holding of these shares of M/s. Careful Projects Advisory Ltd by the assessee as credited in the demat account of the assessee cannot be disputed as the demat account is also an evidence which can be verified independently. It is also not in dispute that the said company M/s. Careful Projects Advisory Ltd was subsequently merged with M/s. Kailash Auto Finance Ltd. and the scheme of the merger/amalgamation was approved by Hon'ble Allahab....
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.... be ignored or brushed aside merely on the basis of the statement of some third person recorded by the Investigation Wing, Kolkata, that too, without confronting the assessee by providing a copy of such statement. 8. In case of Manish Kumar Baid vs. ACIT (supra), the Kolkata Benches of the Tribunal while considering an identical issue of Long Term Capital Gain on sale of shares of M/s. Kailash Auto Finance Ltd. has held in para 6 as under :- "6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the ld AR that the ld AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (supra) for this proposition. The various facets of the arguments of the ld AR supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The p....
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....oking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI's order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. 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 claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in re....
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.... dated 12/7/2012 issued by M/s Sanskriti Vincom Pvt. Ltd. is also established to the extent that the assessee made payment of purchase consideration of Rs. 4.00 lacs through his bank account with ICICI bank and the payment is duly reflected in the bank account statement. Therefore, the payment of purchase consideration has been established beyond any doubt. The only question which can be raised for this transaction of purchase of shares of these two companies is the suppression of purchase price so as to create an artificial capital gain of maximum amount. However, the Assessing Officer has not given any finding that the purchase price was artificial suppressed by the parties with intention to maximize the capital gain through the modus operandi of bringing the assessee unaccounted income in the shape of long term capital gain exempt U/s 10(38) of the Act. The Assessing Officer has given much emphasis on the report of DDIT(inv.), Kolkata and some statements were recorded during the investigation proceedings by Kolkata wing wherein three persons who were brokers namely Shri Anil Khemka, Shri Devesh Upadhyay and Shri Pankaj Agarwal were examined by the DDIT(Inv.), Kolkata and in th....
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.... were sold from the DEMAT account of the assessee is also cannot be doubted. The sale price as on the date of transaction is also the prevailing price in the stock exchange. Hence it is not a case of the Assessing Officer that the assessee has shown an inflated sale price which is not as per the prevailing market price of the shares of M/s Kailash Auto Finance Ltd.. It is pertinent to note that the shares of M/s Kailash Auto Finance Ltd. were issued to the assessee only in lieu of the shares of erstwhile two companies M/s Careful Projects Advisory Ltd. and M/s Panchshul Marketing Ltd. and it is not a transaction of acquiring the shares of M/s Kailash Auto Finance Ltd against the consideration. Thus, the allotment of shares by M/s Kailash Auto Finance Ltd. in pursuant to the scheme of amalgamation established the fact that the assessee was already holding the equal number of shares in the erstwhile companies namely M/s Careful Projects Advisory Ltd. and M/s Panchshul Marketing Ltd. Thus the holding of shares by the assessee and allotment of shares of M/s Kailash Auto Finance Ltd. are the material facts emerging from the records, which cannot be disputed. The allotment of shares of M....
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....cular of Shri Anil Agrawal is said allotment does not appear from any of the record. Even as per the statement as reproduced by the Assessing Officer in the assessment order Shri Anil Agrawal has stated that he is having business nexus with the companies including M/s Rutron International Ltd. The department put a question about the association with as many as 13 companies and in response to that he has accepted that he is having business nexus with these companies including M/s Rutron International Ltd. The nature of service was also explained by Shri Anil Agrawal as the consultancy services. For ready reference we quote question No. 4 and 5 and answer, thereto in the statement of Shri Anil Agarwal as reproduced as under:- Q 4. Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the following companies or have ever had any business transactions with the companies as mentioned below: 1. First Financial Services Ltd. (FFSL) 2. Splash Media and Infra Ltd. ( SPMIL) 3. D B (International) stock Brokers Ltd. ( DBSBL) 4. Unisys Softwares & Holdings Industries Ltd. (USHL) 5. Fact Enterprises Ltd. ( FEL) 6. Parikh Herbal Ltd. ( now Safal Herbs Ltd) 7. ....
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.... Rutron International Ltd. much less the specific transaction of preferential issue allotment of shares by the company itself to the assessee. Further, though he has explained the modus oprendi of providing bogus long term capital gain entries in the equity shares however, when the transaction was not routed through Shri Anil Agrawal and the shares were allotted directly by the company to the assessee at par on face value then the same cannot be considered as a penny stock transactions. The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefor....
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....er Pvt. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500 per share itself shows that it was not a transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon'ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evi....
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....lding of shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has no....
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.... said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon'ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement o....
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.... summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: "5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that....
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....Show Cause Notice." Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:- "46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales pr....
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....to show that the assessee has paid over and above the 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. The Hon'ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:- "12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL,....
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....n some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA- 385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its....
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....e decisions replied upon the ld. DR in case of Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of the present case as the said decision is in respect penny stock purchase by the assessee from a persons who was found to be indulged in providing bogus capital gain entries whereas in the case of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account. Therefore, on analyzing of the facts as well as the evidence produced by the assessee, we find that the Assessing Officer has not brought any material on record to controvert the fact duly established by the supporting evidence of purchase bills, payment of consideration through bank, dematerialization of shares in the DEMAT account, allotment of the shares amalgamated new entity in lieu of the earlier two companies of equal number of shares. Sale of shares from the DEMAT account through ....
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....of natural justice. The Tribunal has also followed the decision of Hon'ble Jurisdictional High Court in case of CIT vs. Smt. Pooja Agarwal (supra) wherein the Hon'ble High Court has also upheld the finding of the ld. CIT (A) and this Tribunal when the assessee produced all the relevant details and evidence in support of the transaction of purchase and sale of shares. The ratio and findings of the aforesaid decision squarely applies in the instant case where the assessee produced all the relevant details and evidence in support of the transaction of purchase and sale of shares and where the said statement of a third person relied upon by the AO was not provided to the assessee inspite of specific request and the assessee came to know of the contents of the said statement only on receipt of the assessment order which is a complete violation of principal of natural justice. 12. Similarly, in case of ITO vs Shri Lalit Kumar Biyani (supra), the Coordinate Jaipur Benches of the Tribunal had an occasion to examine similar issue and taking into consideration various decisions of the Tribunal as well as the decisions of Hon'ble Jurisdictional High Court and that of the Hon'ble Del....
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....10(38) of the Act, the primary onus is on the assessee to substantiate his claim by producing the supporting evidence. We find that in the case in hand this is not an isolated transaction of purchase and sale of shares by the assessee of M/s. PSIT Infra but the assessee has been regularly purchasing and selling of the shares as it is evident from the details of purchase and sale of shares by the assessee. The assessee has even annexed the details of the holding of various shares to the financial statements as on 31st March, 2014 as under:- Thus as on 31st March, 2014 the assessee was holding the shares of about 40 companies which include M/s. PSIT Infrastructure and Services of 6,500 shares. We find that the assessee has duly reflected all these shares in the Balance Sheet of the assessee as on 31st March, 2014 and the return of income for the assessment year 2014-15 was also filed in time before the date of sale of the shares in the month of December, 2014. Thus it is clear that 6,500 shares acquired by the assessee on 08.08.2013 were reflected in the Balance Sheet as on 31st March, 2014. We further note that the assessee produced the copy of purchase bill of these shares alon....
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....he assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record. The ld. D/R has relied upon the decision of Hon'ble Delhi High Court in case of Suman Poddar vs. ITO (supra) wherein the Hon'ble High Court has confirmed the 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 t....
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....und indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record. Accordingly, in view of the facts and circumstances as discussed above, when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified. Therefore, all these facts established the genuineness of the transaction. Hence we do not find any error in assessee's claim of exemption of long term capital gains and the addition made by the AO under section 68 of the IT Act by treating the Long Term Capital Gain on sale of shares as unexplained cash credit is hereby directed to be deleted. The matter is accordingly decide....