TaxTMI 
TaxTMI 
2019 (5) TMI 1885
X X X X Extracts X X X X
X X X X Extracts X X X X
....though assessee has raised a multiple grounds of appeal, but at the time of hearing we have carefully perused all the grounds raised by the Assessee. Most of the grounds raised by the Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the Assessee. With this background, we summarize and concise the grounds raised by theAssessee as follows: "All the grounds of appeal emanate from the action of the ld A.O. in treating the claim of Long Term Capital Gain of Rs. 3,39,46,071/- as bogus and ld CIT(A) confirmed the same. The ld AO had made a further addition of Rs. 1,69,730/-, as unexplained expenditure under section 69C of the Act for commission paid to procure the impugned Long Term Capital Gain and ld CIT(A) confirmed the same. The assessee has also challenged that in absence of incriminating material no addition can be made in the order u/s 153A of the Act in case of unabated assessment." 4. Brief facts qua the issue are that asearch and seizure operation u/s 132 of the Act, was carried out in the residential and business premises of 'Gagan Group' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....G, however, the Assessing Officer rejected the contention of the assessee and made an addition of Rs. 3,39,46,071/-. The Assessing Officerhas also made addition u/s 69C @ 0.5% of commission of final entry provider of Rs. 1,69,730/-. 6.Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us. 7. Ld Counsel for the assessee submitted before us that the entire purchase of 70,000 equity shares and sale of 4,16,680 equity shares (31480 share at face value of Rs. 10/- each plus 385200 share at face value of Rs. 1/- each) of M/s Sulabh Engineers & Services Ltd, were made through Registered Stock Brokers company M/s. Consortium Securities Pvt. Ltd as per the Contract Notes issued by the Registered Brokers. The payment of the purchase price and the receipt of the sale proceeds were made through Banking channel and duly reflected in the Bank account of the assessee maintained with HDFC Bank, Durgapur Branch. All the relevant particulars and documents along with written submissions were filed b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reiterated that he had taken accommodation entries in his different group concerns to bring back unaccounted income into the regular books of account of the group through different jamakharchi companies. [Kindly see Q-6 & 7 of the statement dt.02.05.2015 at Page.61 to 64 of the Paper-book] On 05.06.2015, another statement of Shri Deepak Kumar Agarwal was recorded u/s.131 of the Income Tax Act, 1961 in the office of Dy. Director of Income Tax (Inv), Unit-2(2), Kolkata at 5th Floor, Room No.5/3, Aayakar Bhawan (Annexe), P-13, Chowringhee Square, Kolkata-700069, wherein he confirmed that the shares of Nikki Global Finance Ltd and Sulabh Engineers & Services Ltd were purchased through Shri Biplab Chowdhury, the Entry Operator and the branch head of M/ s. Consortium Securities Private Limited for the purpose of introducing the unaccounted fund generated due to out of books trading into the individual files in the form of LTCG to avail the tax exemption benefit. [Kindly see Q-4 to Q-20 of the statement dt.05.06.2015, incorporated in the assessment order at Pp-23-25] Statement of Shri Biplab Chowdhury was recorded u/s.131 of the Income Tax Act, 1961 in the office of Dy. Director of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nels and which are getting reflected in the demat statement accounts also. The Counsel also stated that the price of scrip was determined by the market forces and there is no any human intervention. By submitting this plethora documents and statements, the ld. Counsel claimed that the long term capital gain generated by the assessee is genuine. We note that in the original Return of Income and the computation of total income the assessee had claimed Long Term Capital Gain ( LTCG) of Rs. 3,39,46,071/- earned on sale of shares as exempt from tax u/s 10(38) of the Income Tax Act. The assessee`s return was processed u/s 143(1) of the Act on dated 26.03.2015 accepting the Returned income. Later on, a search and seizure operation u/s 132 of the Income Tax Act was conducted on 03.03.2015 at various residential and business premises of 'Gagan Group'. The assessee belongs to this 'Gagan Group'. Consequent upon the search, notice u/s 153A was issued on 22.01.2016 calling for the Return of Income for the A. Y. 2013-14. In response to that notice, the assesseefiled Return of Income on 29.01.2016 declaring same total income of Rs. 18,29,180/- as was declared in the original Return. 10. We....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:" We find that the Co-ordinate Bench of Delhi Tribunal in the case of Dy. CIT v. Aggarwal Entertainment (P.) Ltd reported in [2016] 72 taxmann.com 340 (Delhi - Trib.) had addressed this aspect. The relevant headnotes is reproduced below:- "Section 153A, read with section 143, of the Income-tax Act, 1961-S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and distinct from the proceedings contemplated u/s. 147 of the Act and these procedures of assessment operate in different fields and have different purposes to be fulfilled altogether. 6.4.3 The expression 'assess or reassess' stated in section 153A(1)(b) has to be understood as below:- 'assess' means assessments to be framed in respect of abated assessment years irrespective of the fact whether there are any incriminating materials found during the course of search with respect to relevant assessment years ; 'reassess' means assessments to be framed in respect of concluded assessment years where incriminating materials were found during the course of search in respect of the relevant assessment year." We also find that the Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- '37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i) Once a search takes place under section 132 of the Act, notice u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wn in the course of original assessment." We note that based on the above cited legal position, the present appeals concern AYs 2013-14 and 2014-15, on the date of the search (03.03.2015) the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. 11. Now coming to the merits of the case, we note that the assessee had purchased 70,000 equity shares of M/s. Sulabh Engineers & Services Ltd. (hereinafter referred to as M/s. Sulabh) on 16.03.2011 in the F.Y. 2010-11 relevant to the A. Y.2011-12 at total cost of Rs.l4,00,000/- @ Rs. 20/- each. The purchase price was paid by the assessee through his bank account maintained with HDFC Bank, Durgapur Branch. The shares were received and recorded in the Demat account. Out of those 70,000 equity shares 38520 equity shares of M/s. Sulabh were subsequently split on 04.02.2013 in the ratio of 1: 10. Thus after split up the assessee had 385200 shares having face value of Rs. 1/- per share. The entire lot of those 4,16,680 equity shares (31480 share at face value of Rs.l0/- each plus 385200 shares at face value of Rs. 1/- each....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d and not genuine. We note that the entire purchase of 70,000 equity shares and sale of 4,16,680 equity shares (31480 share at face value of Rs.l0/- each plus 385200 share at face value of Rs. 1/- each) of M/s Sulabh Engineers were made through Registered Stock Brokers company M/s. Consortium Securities Pvt. Ltd. as per the Contract Notes issued by the Registered Brokers. The payment of the purchase price and the receipt of the sale proceeds were made through Banking channel duly reflected in the Bank account of the assessee maintained with HDFC Bank, Durgapur Branch. It is totally denied that in the above sale transactions of shares of M/s Sulabh Engineers by the assessee there was involvement of any entry operator or promoter or broker who had allegedly indulged in rigging and / or surging the price of shares of M/s Sulabh Engineers upwards / downwards during the year under assessment and that they had provided any accommodation entry to the assessee to make him unlawfully earn Long Term Capital Gain. We note that the company,'M/s. Sulabh Engineers & Services Ltd.' cannot branded as a penny stock company without any justified and valid reason. Besides having other activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that there was inflow of some information from the Investigation wing alleging that the assessee was involved in selling of so called "penny stock". In this regard it was submitted by the assessee before the assessing officer as follows: i) The shares were purchased and sold through a Registered Broker. ii) The shares were purchased and sold based on the prevailing market condition. iii) The purchase and sale of shares are supported by contract notes. The payments were received through proper banking channel. iv) The purchase and sale transactions were subjected to Security Transaction Tax, Service Tax, Brokerage charges and Stamp duty. v) The share purchase and sale transactions are reflected in the d-mat account. vi) These facts are verifiable from the regular books of accounts. vii) The transactions can also be verified from the Stock Exchange. Therefore, we note that so far this allegation of the assessing officer is concerned, the assessee has proved beyond any doubt that the shares were purchased and sold through a Registered Broker. The shares were purchased and sold based on the prevailing market condition. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be guilty or linked to the wrong acts of the persons investigated. In this case, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the Assessing Officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. We note that the Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax De....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anges have a limit at the lower end and at the highest end within which the order price could be placed. The orders are fed in the exchange trading platform and the trades are marched in the exchange when the order price matches a counter party. Therefore, contention of fictitious buyer cannot be the basis to ascertain the transaction to be non-genuine, one. There is nothing wrong in my opinion to deal in penny stock and this is a usual practice in the business to take risk for windfall gain. From the entire appreciation of the fact, as a investor I had acquired the shares, the purchase of which was duly declared in the books of accounts which stand accepted by the law. The shares are sold through stock brokers who were registered with the Stock Exchange. Shares were, sold at the prices quoted at the Stock Exchange at the relevant time. The payment of sale consideration also flown from the bank account as per the settled rule/principle or stock exchange and SEBI.Nothing was brought as sufficient evidences and material to prove that we/our entity were involved in bogus, false or fabricated long term capital gain." We note that statement recorded under section 132(4) of the Act ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Salay Mohamed Sait 37ITR 151. We note that the entire case of the revenue is based upon the presumption that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion howsoever strong it may appear to be, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the form of LTCG. 18. We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld Counsel, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF - ITA No. 32/Agr/2007 (Agra ITAT) 20. Moreover it was submitted before us by ld Counsel 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 BSE/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 and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs.Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issed. (ii) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal- HC) In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal, wherein, the tribunal allowed the appeal of the assessee where the ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the ld AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the ld AO's conclusions are merely based on the information received by him. The appeal filed by the revenue wasdismissed. (iii) CIT V. Andaman Timbers Industries Ltd [ITA No. 721of 2008] (Cal-HC) In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (iv) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal- HC) in ITA No. 22 of 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand, the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... We note that in the case of Union of India v. Raghubir Singh (1989) 178 ITR 548 (SC), the Supreme Court held that the doctrine of binding precedent has merit of promoting certainty and consistency in judicial decisions. As per the doctrine of precedent, all lower Courts, Tribunals and authorities exercising judicial or quasi-judicial functions are bound by the decisions of the High Court within whose territorial jurisdiction these Courts, Tribunals &authorities functions. Therefore, respectfully following the judgments of the Jurisdictional, Hon`ble High Court of Calcutta, on similar and identical facts, the addition made by assessing officer should be deleted. 23. We note that when the transactions were as per norms prescribed by SEBI and concerned stock exchange and suffered STT,brokerage, service tax, and cess. There is no iota of evidence over thetransactions as it were reflected in demat account. AO did not doubt the genuineness of the documents submitted by assessee. The ld AO failed to bring on record any evidence to suggestthat the sale of shares by the Assessee were not genuine. The assessee produced the contract notes, details of demat accounts and produced documents....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Kol/2017 (Kolkata ITAT) (xxxviii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 29. The ld AR also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon'ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon'ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al with the facts in the cases wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s KAFL. We, therefore, respectfully following the same, and set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition." (ii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/2018, order dated 05.09.2018. "35.In the light of the documents stated in para 30 at Page14(supra) we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore direct the AO to delete the addition." (iii) Navneet Agarwal, ITA No.2281/Kol/ 2017, order dated 05.09.2018 "The assessee in this case had stated that the assessee was allotted of 50000 equity shares of SCITIL. The payment for the allotment of shares was made through an account payee cheque (copy of the bank statement evidencing the source of money). Annual return no. 20B was filed with Registrar of companies by SCITIL showing the assessee's name as shareholder. The assessee lodged the said shares with the Depository ESSBSL with a Demat request. The said shares were dematerialized and copy of demat request slip along with the transaction statement is placed on record. Later on, the High Court approved the scheme of amalgamation of SCITIL with CSL. In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of CSL. The demat shares are reflected in the transaction statement of the period from 1-11-2011 to 31-12-2013. The assessee sold 50000 shares through her broker SKP which was a SEBI registered broker and earned a Long Ter....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Opportunity of cross examination has to be provided to the assessee, if the Assessing Officer relies on any statements or third party as evidence to make an addition. If any material or evidence was sought to be relied upon by the Assessing Officer, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behaviour by the department. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the Assessing Officer relied only on a report as the basis for the addition. The evidence based on which the DDIT report was prepared is not brought on record by the Assessing Officer nor is it put before the assessee. The submission of the assessee that she is just an investor and as she received some tips and she chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that she is not party to the scam etc., has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the Assessing Officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. The Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not find any incriminating material, hence addition should not be made in case of unabated assessment years (that is, concluded proceeding).We note that assessing officer mainly made addition based on theory of "Suspicious Transactions", on the basis of report of Investigation Wing. We note that the Ld. A.O. was required to convert the suspicion into the legal evidence by way of bringing concrete and conclusive findings and material on records. Since, the Ld A.O. took no step whatsoever the suspicion remains intact and suspicion whatsoever strong cannot take the position of legal evidences. We note that the Assessing officer as well as the Commissioner (Appeals) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However, the Assessing Officer as well as the Commissioner (Appeals), have not brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains.We note that Mr. Deepak Kumar Agarwal has retracted from his statement which was taken by the DDIT (Inv). Wing Kolkata on 05.06.2....