TaxTMI 
TaxTMI 
2021 (6) TMI 925
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....owing Long Term Capital Gain on sale of shares of Rs. 36,14,053/- claimed exempt u/s 10(38) of the Act, 1961 and brokerage @ 2% of Rs. 72,281/- for earning the said gain thus totaling Rs. 36,86,334/- and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 36,14,053/- was rightly claimed as exempt u/s 10(38) be accepted as such and the alleged brokerage @ 2% of Rs. 72,281/- spent to earn such gain he deleted and the order of the Ld. CIT(A) may very kindly be quashed. 2. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. " (ii) Grounds of appeal in ITA No.703/Ind/2018 - Smt. Vijaya Nyati 1."That the Ld. CIT(A) erred in upholding the action of the Assessing Officer disallowing Long Term Capital Gain on sale of shares of Rs. 33,98,3871- claimed exempt u/s 10(38) of the Act, 1961 and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 33,98,387/- was rightly claimed as exempt u....
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....roviding an opportunity of cross examination to the assessee which is against the principles of natural justice. (c) completely ignoring the well- established position of law that no addition can be made solely on the basis of statements recorded on oath during the course of survey proceedings u/s 133A having no evidentiary value. (d)simply on the basis of information received from A.D.I.T.(Inv), Mumbai, without making own independent enquiry and efforts. 3. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. " (iv) Grounds of appeal in ITA No.705/Ind/2018 - Shri Manish Kumar Radheshyam Nyati, HUF 1."That the Ld. CIT(A) erred in upholding the action of the Assessing Officer disallowing Long Term Capital Gain on sale of shares of Rs. 33,25,952/- claimed exempt u/s 10(38) of the Act, 1961 and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 33,25,952/- was rightly claimed as exempt u/s 10(38) and it is prayed that the exempt Long Term Capital Gain be ac....
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....change and the amount impugned before us are as under:- S.No. Name Long Term Capital Gain 1 Ms. Ayushi Nyati Rs. 36,14,053/- 2 Smt. Vijaya Nyati Rs. 33,98,387/- 3 Shri Vijay Kumar Radheshyam Nyati HUF Rs. 35,01,004/- 4 Shri Manish Kumar Radheshyam Nyati HUF Rs. 33,25,952/- 5 Smt. Mamta Nyati Rs. 35,99,598/- (ii) Addition for brokerage expenses of Rs. 72,281/- deemed to have been incurred by Miss Ayushi Nyati for arranging accommodation entry of LTCG. 4. Since most of the issues are common and as agreed by all the parties we will take up the facts of Miss Ayushi Nyati for the purpose of adjudication. 5. Brief facts of the case are that return of income for Assessment Year 2014-15 was e-filed on 29.7.2014 declaring income of Rs. 4,10,680/-. Case selected for scrutiny through CASS followed by serving of statutory notices u/s 143(2) and 142(1) of the Act. In the return of income Long Term Capital Gain of Rs. 36,14,053/- was claimed as exempt income u/s 10(38) of the Act arising from sale of equity shares of M/s Sunrise Asian Limited (In short 'SAL') listed at Bombay Stock Exchange. It was submitted by the assessee that the equity shares were held for m....
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....cks. 2. Purchase of 7500 shares @ Rs. 20/- each of Conart Traders Ltd. was made by cheque from Santoshima Lease Finance & Investment (India) Ltd. on 17.09.2011 for Rs. 1,50,000/- in physical form through an off-market transaction. 3. The shares of Conart Traders Ltd. were duly dematerialized. 4. Name of Santoshima Lease Finance & Investment (India) Ltd. was changed to Santoshima Tradelinks Ltd. on 16.09.2011. 5. Amalagamation of Conart Traders Ltd and Santoshima Tradelinks Ltd. with Sunrise Asian Ltd. took place on 11.10.2012 by order of Mumbai High Court. 6. Assessee received 7500 shares of Sunrise Asian Ltd. in lieu of shares of Conart Traders Ltd. post amalgamation on 26.06.2013 received in demat account on 28.06.2013. 7. Sale of 7500 shares of Sunrise Asian Ltd. was made on different dates through an authorized broker Swastika Investmart Ltd, / Arihant Capital Markets resulting in LTCG claimed exempt u/s 10(38). 8. It would be worthwhile to note that the sale proceeds were received by cheque duly credited in Bank accounts of the assessee's respectively. 9. Sunrise Asian Ltd. was listed and traded on Bombay Stock exchange. 10. The following documents were submi....
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....s bears the date of last week of November 2011, the reason being that the change of name and other formalities were taking place and since the allotment was made in physical form some time gap is inevitable. d) The share certificate carries only the endorsement not the transfer of shares. The endorsed share certificate was received in second week of December, 2011. The shares were dematerialized subsequently in the next year i.e. 2012. e) The rubber stamp analogy is baseless as M/s Santoshima Tradelinks Ltd. was a substantial shareholder of Conart Traders Ltd. and hence a rubber stamp must have been prepared to save time as the share certificates were issued manually. The endorsement of shares in the name of the purchaser i.e. the assessee when they were sold is hand written. f) The broker account referred by the AO is that of USS Broking Pvt. Ltd. from whom the transaction of the shares of Conart Traders Ltd. has not taken place. (in case of Vijaya Nyati) The assessee was having demat account with two more depositories viz. Saraswat Bank and Swastika Investmart Ltd. from whom shares were purchased and sold respectively. g) The credit in the demat account on 12.02.2013 is s....
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....tead he chose to make the addition simply on the basis of suspicion which howsoever strong it may be cannot replace evidence. The Ld. CIT(A) on the other hand has relied on the investigation carried out by DIT (Investigation), Kolkatta and discussed the alleged modus operandi of the operators, pan India, to rig share prices and generate Long Term Capital Gain which is exempt from tax. No opportunity was given by the Ld. CIT(A) to counter the same. The Ld. CIT(A) has also quoted admission made by various entities like M.P. Stock Exchange, Indore, Destiny Securities Ltd. New Delhi that Sunrise Asian was one of the penny stocks through which Long term Capital Gains were arranged for beneficiaries. These are general observations and the appellant was never confronted with these facts. The Ld. CIT(A) has further observed that the appellant has not produced evidences in support of this claim are not based on facts as the appellant has produced all possible documentary evidences to discharge the primary onus cast on him as stated above. Further observations made by the Ld. CIT(A) are addressed as under :- i) The observation that the assessee has not made any investment in any othe....
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....behind the back of the assessee without affording an opportunity of being heard. The most important part in the Ld. CIT(A) order is his quoting of the statement of Shri Vipul Vidur Bhatt recorded on 04.02.2016 by ADIT (Inv), Unit 4(3), Mumbai during the course of survey u/s 133A in the case of Shipra Fabrics Pvt. Ltd. Mumbai wherein Shri Vipul Vidur Bhatt categorically accepted that he has rigged the price of shares of M/s Sunrise Asian Ltd. Reference to Q. 20 has been made. Your Honour's kind attention is drawn to the decision of the Hon'ble ITAT Mumbai bench in the case of Mayuresh Logistics, ITA 6691/Mum/2017 (copy at pages 200 to 216) where in a reference has been made to the retraction of statement made by Shri Vipul Vidur Bhatt on affidavit dated 02.09.2016 where he has denied to have given any accommodation entries. (Refer page 208) The said statement has not been rejected and thus stands accepted by the revenue authorities. When the retraction statement is made on affidavit on oath then it was required to be countered by revenue and rejected by the appellate authorities but it has not been done. The statement made earlier on 04.02.2016 by Shri Bhatt thus loses its sanct....
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....through broker, GSSL and the address of the said broker was same as the address of the two companies. None of these factors are present in the present case before your Honour. Hence it can be concluded that the decision of Hon'ble Bombay High Court is factually distinguishable. In the case before your Honour the Ld. CIT(A) who has coterminous powers as that of the Assessing Officer made no efforts to conduct independent enquiries but chose to rely on borrowed satisfaction. The other judgments cited by the Ld. CIT(A) have been distinguished by other judgments of appellate authorities which have been submitted separately as Case Laws Paper Book. To summarize once again: 1. The purchase was an off-market transaction where payment was made by account payee cheque and duly reflected in the bank account. 2. The share of Sunrise Asian Ltd. was duly traded on BSE. 3. The sale of shares was made online on BSE through a registered and renowned broker of Indore i.e. Swastika Investmart Ltd. Even STT was paid. 4. The sale proceeds were received in the bank account of the assessee. 5. The sale and purchase of transaction had been made through account payee cheque which was sup....
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.... 17. So far as the suspension of trading on BSE of Sunrise Asian Ltd. is concerned it was not due to some circuit trading or rigging / price manipulation but non- compliance of listing regulations and failure to pay the mandatory fines for much non-compliance. A copy of clipping of The Economic Times dated 17.11.2016 is enclosed at page 09 herewith. The BSE has further revoked its order of compulsory delisting on 11.05.2018 in case of Sunrise Asian Ltd. Relevant extract of the order downloaded from BSE site is enclosed at pages 10 to 11. 18. The company was making profits in the year under consideration and showed good prospects. Report of Research department of CRISIL fortifies this view. If the company was showing no profits how could it inform the BSE about its proposed payment of interim dividend. Copy of letter dated 24.10.2016 by Sunrise Asian Ltd. to BSE is enclosed at page 12. 19. The most important point in this case is that neither the Assessing Officer nor the Ld. CIT(A) were able to unearth any money trail which proved that the appellants own money has come back to shim in the garb of Long term capital gain. The entire addition thus falls flat as it is purely based....
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....shok Agrawal & Others V/s ACIT, Jaipur, I.T.A.T. ITA No.124/JP/20 & others dated 18.11.2020. 10. Ld. Counsel for the assessee also submitted that the case of the assessee is squarely covered by the decision of Co-ordinate Bench of Jaipur in the case of Ashok Agrawal and others ITA No.124/JP/2020 & others order dated 18.11.2020 wherein similar facts and issues have been examined relating to Long Term Capital Gain from sale of shares of M/s Sunrise Asian Limited and Hon'ble Tribunal has held that since the assessee has discharged the necessary onus casted on him in terms of claim of exemption of Long Term Capital Gain u/s 10(38) of the Act by establishing the genuineness of transaction to prove that "SAL" is not a penny stock company and also satisfying the requisite conditions in order to claim the exemption u/s 10(38) of the Act for LTCG arising from sale of equity shares of M/s SAL. 11. Per contra Ld. Departmental Representative has submitted that the Ld. AO has discussed all the relevant 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....
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.... Poddar vs. ITO, 112 taxmann.com 329 (Delhi). The Id. D/R has submitted that the Hon'ble High Court has confirmed the decision of the Tribunal whereby the Long Term Capital Gains claimed by the assessee in respect of purchase and sale of penny stock were treated as bogus transactions being accommodation entries. It was submitted that the SLP filed by the assessee against the judgment of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court reported in 112 taxmann.com 330 (SC). 12. 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 banking channel, thus the said decision cannot be applied in the present case....
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....There are so much similar that they also pertains to issue of Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited. Co-ordinate Bench of Mumbai in the case of Dipesh Ramesh Vardhan V/s DCIT ITA No.764/Mum/2019 dated 11.08.2020 and Co-ordinate Bench of Jaipur in the case of Ashok Agrawal ITA No.124/JP/2020 and others order dated 18.11.2020 has adjudicated very same issue. Even this Tribunal recently in the case of Mr. Ayush Jain and others ITA No.616/Ind/2019 order dated 30.4.2021 dealt with the very same issue pertaining to genuineness of claim of Long Term Capital Gain u/s 10(38) of the Act for sale of equity shares of M/s Sunrise Asian Limited and both the above stated judgments of Co-ordinate benches of Mumbai and Jaipur are considered and reliance has also placed on the judgment of Hon'ble High Court of Delhi in the case of PCIT V/s Smt. Krishna Devi & others (supra) observing as follows:- 15. We have heard rival submissions and perused the records placed before us and carefully gone through the judgments and decisions referred and relied by both the parties. The issue of genuineness of claim of exemption of Long Term Capital Gain (In short 'LTG....
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.... for getting the shares in dematerialized form. 22 October 2012 Letter issued to Mr Nilesh P Chouhan, Director of the company seeking information in respect of amalgamation and raising concerns about the proposal. November 2012 Received letter from the company explaining the rationale for merger and satisfying the queries raised. March 2013 The Hon'ble Bombay High Court passed the order for merger of the company with M/s Sunrise Asian Limited June 2013 New shares in Sunrise Asian Limited received in lieu of holding of Santoshima Tradelinks Limited in demat account. July 2013 Received Balance sheet of the Sunrise Asian for the FY 2012-13 Nov 13 onwards Sale of shares through stock Exchange Following documents were furnished: . Copies of contract notes in respect of sale of shares. . Copy of ledger account of the broker. . Copy of the bank account statement for the year reflecting the transactions with broker. 17. From going through the above sequence of events which are duly supported by evidence filed by the assessee before both the lower authorities and before us prime facie show that the assesse applied for 30000 equity shares on 19.9.2011 the name of the c....
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....uine and SAL is not a penny stock company and further holding that the alleged transaction is neither bogus nor sham. Further the Tribunal has deleted the addition for estimated brokerage expenses for arranging accommodation entry. Relevant finding of Hon'ble Mumbai Tribunal in the case of Dipesh Ramesh Vardhan Vs DCIT recently delivered on 11.08.2020 is reproduced below:- 6. We have carefully heard the rival submissions and perused relevant material on record. So far as the factual matrix is concerned, there is no substantial dispute regarding the same. The perusal of record would reveal that the assessee purchased certain shares of an entity namely M/s STL as early as September, 2011. The shares were converted into demat form in assessee's account during the month of March, 2012. The transactions took place through banking channels. The investments were duly reflected by the assessee in financial statements of respective years. The copies of financial statements of M/s STL for FYs 2009-10 & 2010-11 which led to investment by the assessee in that entity was also furnished during the course of assessment proceedings. Subsequently, M/s STL got merged with another entity ....
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....roup entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon'ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. The whole basis of making the addition is third party statement without there being any tangible material. It is trite law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law as held by Hon'ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151). The suspicion however strong could not partake the character of l....
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....nce of M/s SAL is beyond doubt since it was a listed corporate entity and secondly, it was subject matter of scheme of amalgamation u/s 391 to 394. The scheme of amalgamation was duly been approved by Hon'ble Bombay High Court. Therefore, the existence of the said entity could not be doubted, in any manner. 10. The above conclusion is further fortified by the fact that in share sale transactions through online mode, the identity of the buyer of the shares would not be known to the assessee. Therefore, the adverse conclusion drawn by Ld. AO merely on the basis of the fact that the buyer of the shares were group entities of Shri Vipul Bhat, could not be sustained. The fact that there were independent buyers also would rebut the same and weaken the conclusion drawn by Ld. AO. 11. The Ld. AR has relied on plethora of judicial pronouncements in support of various submissions, which we have duly considered. These decisions would only support the conclusions drawn by us that once the assessee has discharged the onus of proving the genuineness of the transactions, the onus would shift on the revenue to dislodge assessee's claim and bring on record contrary evidences to rebut the same....
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..../s 10(38) of the Act and decided in favour of the assessee and against the revenue observing as follows:- "23. In the aforesaid decision, it has been held that it is SESI 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 Id. AO has referred to SESI 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 that matter, the price and realization on sale of shares so undertaken by the assessee through the stock exchange. Further, it has been held in the aforesaid case that the....
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....8) 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 a/so 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/ 'r am of the view that the capital gains declared by the assessee cannot be doubted with. In that View of the metier; the addition made towards expenses is not also sustainable. 25. In light of above discu....
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....as rightly came to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. Relevant extract of the judgment of Hon'ble Delhi High Court in the case of PCIT V/s Krishna Devi & Others is reproduced below:- "10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We ha....
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....eived through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) wer....
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....by the assessee namely Shri Ayush Jain and delete the addition of Rs. 1,40,95,302/- and also allow Ground No.2 thus deleting addition for estimated brokerage expenses of Rs. 4,22,859/-. The other two grounds are general in nature which needs no adjudication. 22. In the result appeal of the assessee, Shri Ayush Jain in ITA No.616/Ind/2019 is allowed. 16. We therefore in the light of the above discussion and in the entirety of facts and circumstances of the case and respectfully following the judgment of the Co-ordinate Benches in cases referred (supra) consistently holding that "Sunrise Asian Limited" is neither a penny stock nor a paper company, are of the considered view that as all the five assessee(s) namely Kumari Ayushi Nyati ,Smt. Vijay Nyati, Shri Vijay Kumar Radheshyam Nyati (HUF), Shri Manish Kumar Radheshyam Nyati (HUF), Smt. Mamta Nyati have discharged necessary onus casted upon them in terms of claim of exemption of Long Term Capital Gain u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the Long Term Capital Gain so arisen has been rightly claimed as exemp....