TaxTMI 
TaxTMI 
2021 (2) TMI 1180
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.... 2. Because no notice having been issued u/s 143(2) in the explicit terms as provided in section 143(2)(ii), the notice issued fails to vest jurisdiction in AO to frame the assessment u/s 143(3), the entire assessment framed by the Assessing Officer and upheld by the CIT(A) is bad in law and be quashed. 3. Because the CIT(A) has erred on facts and in law in holding that the surplus of Rs. 88,88,529/- arising on sale of equity shares that the appellant held in M/s. Sulabh Engineering and Services Ltd. was on account of sham transaction and on that basis denying the appellant's claim for exemption of Rs. 88,88,529/- u/s 10(38) of the IT. Act, 1961, which order passed by the Assessing Officer and upheld by the CIT(A) is bad in law, the denial of exemption u/s 10(38) be allowed. 4. Because the CIT(A) has erred on facts and in law in overlooking the facts which are as under: a) The appellant had purchased shares from Sulabh Engineering and Services Ltd., a company registered at stock exchange through preferential allotment in the earlier years; b) Payment for purchase of shares had been made directly to M/s. Sulabh Engineering and Service....
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....ade on the basis of the same and the denial of exemption u/s 10(38) both are bad in law, the exemption claimed be allowed." 3. At the outset, ld. AR submitted that issue involved in these appeals is denial of exemption u/s. 10(38) of the Act which the assessee had earned on the sale of equity shares after holding them for more than a year. It was submitted that the scrip involved in these appeals is M/s Sulabh Engineers and Services Ltd. and Income Tax Department on the basis of an investigation report by investigation wing had held gains from this scrip and many other scrips as bogus and had therefore made the additions by treating the long term capital gain as bogus. It was submitted that various benches of the Tribunal has already allowed relief to various assessees in the case of this scrip by holding the capital gain earned by the assessees as genuine. Reliance in this respect was placed on the following case laws: 1. Smt. Suman Kothari vs. ITO, in ITA No. 2467/Kol/2017, Order dated 10.05.2018. 2. Smt. Nainimal Jain Anitha vs. ITO, in ITA No. 384/Kol/2019 Order dated 18.06.2019. 3. Sanjay Kumar Agarwal (HUF) vs. ITO, in ITA No. 2378/Kol/2018 order....
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....o the assessee had earned long term capital gain on the sale of same scrip i.e. M/s Sulabh Engineering and Services Ltd. and during this year 30000 shares out of the balance shares originally allotted were sold and our attention was invited to paper book pgs. 11 to 15, where a copy of contract notes issued by India Infoline Ltd. was placed. Our attention was further invited to paper book Pgs. 17 to 19, where a copy of account of the broker India Infoline Ltd. was placed and where the proceeds of sale of the shares was credited to the account of the assessee. Our further attention was invited to paper book Pgs. 2 to 10 where a copy of bank statement of assessee was placed and wherein the proceeds were credited for the sale of such shares. It was further submitted that in this year besides the issue of long term capital gain there was an issue of deposit in the bank account of the assessee. The Ld. AR submitted that such deposits were made out of cash sale for the period 01.04.2014 to 31.03.2015 and further submitted that certain bank statements could not be submitted to substantiate the cash deposits. The reason for non submission of such documents was that though assessee had submi....
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....ies is that Assessing Officer on the basis of a report from investigation wing of the Department has held the capital gain to be bogus and has held the amount of capital gain as assessee's own money being unaccounted money converted into accounted money by managing the capital gains. The assessee, on the other hand, produced before the authorities below evidences for allotment of shares and for making payment to the company directly through banking channels. Copy of allotment letter from the company is placed at paper book pg.1 whereby the company had acknowledged the receipt of Rs. 20.00 lacs and had allotted one lac shares to the assessee. The payment to the company was made from the bank account of the assessee, a copy of which is placed in paper book Pg. 2 to 8. A part of the shares were sold by India Infoline Ltd. in the two years and the contract notes issued by India Infoline are placed in paper book Pgs. 9 to 14 and 11 to 15 in the two years respectively. Copy of Demat Account of the assessee where the shares allotted by company were credited and from where the shares were sold is placed at paper book pgs. 33 to 40 and 24 to 31 respectively in the two years. The copy of ban....
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....shares of M/s Sulabh Engineers and Services Ltd. for assessment year 2013-14 (PB-18 to 23) were also submitted. The assessee also submitted the sale bill along with contract note from broker for sale of 1,25,000 shares of M/s Sulabh Engineers and Services Ltd. (PB- 23 to 46). The broker's statement showing payment made for the sale has also been submitted by the assessee,(vide PB-47 to 59). The bank statement reflecting receipt of sale consideration for sale of 1,25,000 shares of M/s Sulabh Engineers and services ltd is placed in paper book vide,(PB-60 to 63). The Profit & loss account and computation of income for assessment year 2014-15 (PB-64 to 69) were also placed in the paper book. With help of these plethora documents and evidences, the ld Counsel claimed that long term capital gain on sale of equity shares of Sulabh Engineering and Services Ltd. of Rs. 1,12,13,010/- during the current financial year, is genuine. 8. We note that the assessee has earned long term capital gain on sale of equity shares of Sulabh Engineering and Services Ltd. of Rs. 1,12,13,010/- during the current financial year. During assessment proceedings details and evidences in support of purchas....
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....o show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on allegedPenny Socks. (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF - ITYA No. 32/Agr/2007 (Agra ITAT) 14. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act a....
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....e the consequential addition on account of unexplained expenditure towards commission at Rs. 56,065/-. 10. In the result, appeal of the assessee is allowed." 9. Similarly the Chennai Bench of ITAT in ITA 384 vide order dated 18.06.2019 in the case of same scrip of M/s Sulabh Engineering Ltd. has allowed relief to the assessee. Similar is the position of SMC bench Kolkata, whereby in ITA No. 2378 vide order dated 07.08.2019, the Tribunal allowed relief to the assessee. Again SMC Kolkata Bench in ITA 1018 vide order dated 15.02.2019 allowed relief to the assessee on the same scrip and similar is the position of B bench of Kolkata wherein vide order dated 10.05.2019 in ITA Nos. 125 and 126 the same scrip of Sulab Engineering and Services Ltd. was considered and relief was granted to the assessee. 9.1 We further find that in a recent judgment by the Hon'ble Delhi High Court vide order dated 15.01.2021 in an appeal filed by Revenue against the order of Tribunal the Hon'ble Court in a consolidated order in three appeals dismissed the appeals of the Revenue. In I.T.A. No.125, on the basis of same investigation report, the Assessing Officer and CIT(A) had not allowed....
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.... the Respondent had claimed exempted income of Rs. 96,75,939/- as receipts from Long Term Capital Gain [hereinafter referred to as 'LTCG'] under Section 10(38) of the Act. He inter alia concluded that the assessee had adopted a colorable device of LTCG to avoid tax and accordingly framed the assessment order under Section 143(3) of the Act at the total income of Rs. 1,09,12,060/-, making an addition of Rs. 96,75,939/- under Section 68 read with 115BBE of the Act on account of bogus LTCG on sale of penny stocks of a company named M/s Gold Line International Finvest Limited. The appeal before the CIT(A) was dismissed and additions were confirmed with the observation that the Respondent had introduced unaccounted money into the books without paying taxes. Further appeal filed by the Respondent before the learned ITAT was allowed in her favour, and the additions were deleted vide the Impugned Order, relevant portion whereof reads as under: "21. A perusal of the assessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without cond....
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....he brokers of the assessee namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of the fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI. 26. There is no dispute that the statements which were relied by the Assessing Officer were not recorded by the Assessing Officer in the assessment proceedings but they were pre-existing statements recorded by the Investigation Wing and the same cannot be the sole basis of assessment without conducting proper enquiry and examination during the assessment proceedings itself. In our humble opinion, neither the Assessing Officer conducted any enquiry nor has brought any c....
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....rveyed and also statements recorded which confirmed the payment of cash commission by the beneficiaries for being part of the syndicate." 8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In sup....
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....n 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 deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brou....
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.... 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 him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed." 10. In the above noted judgment, the Hon'ble court has held that startling spike in the share price and other factors may be enough to show circumstances that might create suspicion but the Court has to decide an issue on the basis of evidence and proof, ....