TaxTMI 
TaxTMI 
2021 (6) TMI 965
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....al income of the appellant on account of sale proceeds realized on sale of shares under section 68 of the Act by treating it as unexplained cash credits without properly appreciating the facts of the case and submissions made before him more so when the appellant had filed ample documents so as to justify the genuineness of long term capital gain which were never disproved by the assessing officer. 2. That on the facts and circumstances of the case and in law the learned assessing officer erred in taxing the entire amount of sale proceeds realized on sale of shares without even allowing the deduction of cost of shares as actually incurred by the appellant without assigning any specific reason for the same. 3. That on the facts and circumstances of the case and in law the learned CIT(A) erred in maintaining the addition made by the assessing officer on account of proceeds as realized on sale of shares on the basis of third party documents/statements which were never confronted with the appellant and against which an opportunity of cross examination was also not allowed to the appellant. 4. That on the facts and circumstances of the case and in law the lear....
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....med from sale of equity shares of Turbotech Engineering Limited. Sale consideration of Rs. 17,15,240/- was received from online sale made on the portal of recognised stock exchange through a registered broker and share transferred from Demat account. During the course of assessment proceedings carried out by Ld. A.O by issuance of notices u/s 143(2) and 142(1) these transactions giving rise to Long Term Capital Gain was questioned. Assessee filed relevant details to prove the genuineness of transaction but Ld. A.O treated it as bogus Long Term Capital Gain on account of following three reasons; (i) Purchase made on off line (ii) Abnormal increase in share of Price of Turbotech Engineers Ltd not backed by financial growth. (iii) Outcome of enquiries conducted by Director of Investigation, Kolkatta in case of some entry operators, share brokers which were alleged to be engaged in providing various accommodation entry of Long Term Capital Gain and Short Term computed from transaction of purchase/sale of listed securities. Though the Ld. A.O did not made any specific observation about the involvement of the assessee in the alleged scam done by the entry op....
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....0(38) of the Act for Long Term Capital Gain earned by the assessee and also erred in holding the transactions as sham. (ii) Whether Ld. CIT(A) erred in rejecting the assessee(s) ground challenging the validity of assessment proceedings with respect to the additions of Long Term Capital Gain/ sale consideration without being granted opportunity of cross examination of the persons whose statements were used by the Ld. A.O to make the additions. 6. Since the issues are common we will now adjudicate the same on the basis of facts of the case of assessee namely Shri Hakimuddin Khambati in ITA No.288/Ind/2019 and our decision shall be applied mutandis mutandis on the grounds raised by another assessee namely Smt. Manish Agrawal. 7. Assessee namely Shri Hakimuddin Khambati aggrieved with the finding of Ld. A.O filed appeal before Ld. CIT(A) again furnished all relevant documents and also made explanation that all the conditions u/s 10(38) of the Act were fulfilled and the claim of Long Term Capital Gain should be allowed and additions u/s 68 of the Act is uncalled for as the identity, genuineness and creditworthiness of the person giving the amount of sale consideration to ....
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.... ground that addition was uncalled for as the opportunity of cross examination was not provided. 12. Facts and issues of both the assessee(s) are similar except that in the case of Shri Hakimuddin Khambati. Ld. A.O denied the benefit of Section 10(38) of the Act and made addition for sale consideration received from sale of shares of Turbotech Engineering Ltd as unexplained cash credit u/s 68 of the Act, whereas in the case of Smt. Manisha Agrawal, Ld. A.O. denied the benefit of Section 10(38) of the Act for Long Term Capital Gain from sale of share from Kappac Pharma Ltd and made the addition for Long Term Capital Gain claimed by the assessee. Apart from this Ld. A.O has commonly concluded that both the Turbotech Engineering Ltd and Kappac Pharma Ltd are small and penny stock companies as their share price have increased abnormally which are not commensurate with the financial status and growth of the company. Ld. A.O has also alleged both the companies as penny stock companies based on the investigation carried out in the case of some other brokers/ sub brokers and companies at Kolkatta and other places where some persons have stated that they are engaged in providing accommod....
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....upra) vide order dated 26.9.2019 and the Co-ordinate Bench held in favour of the assessee thereby allowing the claim of exemption u/s 10(38) of the Act for Long Term Capital Gain and also dealing with the legal issue of the opportunity of cross examination being not provided to the assessee even when the addition was made on the basis of statement of third person, thus allowing the assessee's appeal on both the legal ground as well as on merits observing as follows:- 12.We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the transactions of the assessee of purchase of shares of M/s Esteem Bio and M/s Turbotech., holding of the shares for more than one year and the sale of shares through a registered share broker in a recognized Stock Exchange and payment of Securities Transaction Tax thereon, all were supported by documentary evidences which were placed before the lower authorities. The Revenue could not point out any specific defect with regards to the documents so submitted by assessee. In our considered view, effect of a transaction which is supported by documentary evidences cannot be brush....
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....which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was 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 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 As mentioned above, the appellant had contested the truthfulness of the statements of these two witne....
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.... and inconsistent. The main thrust of the assessee's argument is that he was denied the right to cross-examination of the two individuals whose statements led to the inquiry and ultimate disallowance of the long term capital gain claim in the returns which are the subject matter of the present appeal. This court has considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent - A.O., CIT(A) and the ITAT have all consistently rendered adverse findings - what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal. This appeal is accordingly dismissed." 15. On going through the aforesaid judgment, we find that no question of law was form....
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....ld that it is the option of the buyer of shares to keep the shares either in Demat form or in paper form. Merely because the shares were dematted at a later stage, no adverse inference could be drawn. The Learned Counsel for the Assessee has taken us through various documents filed in the paper book as referred to above which specifically prove the purchase of shares made by assessee genuinely which were also sold genuinely. The transactions were carried through Demat account and banking channel on which STT has been paid by assessee. The report of the SEBI was not adverse in nature against the assessee because name of the assessee did not appear therein for conducting dubious transaction. The report of the Investigation Wing and other material was neither confronted to assessee nor there was any inquiry from where it transpired that assessee was beneficiary of any bogus long-term capital gain; therefore, the same cannot be read in evidence against the assessee. A specific material against the assessee should have been brought on record to put assessee under liability. However, in the present case, the entire documentary evidence on record has not been disputed by the auth....
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....tum 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 have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deepe....
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....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) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by hi....
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....ength 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 have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxe....
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....fore 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) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same....