TaxTMI 
TaxTMI 
2021 (12) TMI 301
X X X X Extracts X X X X
X X X X Extracts X X X X
....espect of Long Term Capital Gains u/s.10(38) of the IT. Act, 1961, the addition made and upheld is contrary to the facts bad in law and be deleted. 2. Because complete details of purchase and sale of shares, such as bills, contract notes, and the transaction having taken through proper banking channels, on SE portals, through SEBI registered brokers, credited to the demat account the Long Term Capital Gains on sale of shares can neither be denied nor disbelieved merely on suspicion, the exemption u/s. 10(38) as claimed, be allowed. 3. Because the entire proceeds of sale of shares is neither an advance nor a deposit, the CIT(A) as well as Dy. CIT have erred in law and on facts in treating the sale proceeds as unexplained cash credit by applying the provisions of section 68 of the Act, which provisions are not applicable, the denial of exemption u/s. 10(38) of Rs. 2,93,82,3497-in respect of LTCGs be allowed and thereby the addition made to the total income, be deleted. 4. Because the CIT(A) has erred in law and on facts in upholding a sum of Rs. 8,81,470/- u/s.69C of the IT. Act 1961, on the basis of presumptive payment to the broker, is altogether contrary to the facts, bad in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held by the assessees in various years. It was submitted that one of the objections of the authorities below is that the broker, through whom the shares were sold, was banned by the SEBI in 2010 on account of price manipulation of shares and rigging of stock prices. It was submitted that another objection of authorities below for rejecting the claim of assessees is that the scrip had gained manifold in a short period of time and the financials of the company did not warrant such exorbitant increase in prices. Learned counsel for the assessee submitted that in this respect the authorities below has relied on certain case laws wherein the Tribunal/courts had decided the issue against the assessee. It was submitted that as regards the allegation of the authorities below that assessee had sold the shares through a broker, who was banned by SEBI in 2010, the authorities below has further noted in their respective orders itself that such ban was latter on revoked and SEBI had restrained such broker only for purchase and sale of shares through proprietary account and ban on sale and purchase of shares of client was revoked. Learned counsel for the assessee submitted that the assessee had....
X X X X Extracts X X X X
X X X X Extracts X X X X
....umati Dayal and has also considered the case laws of Suman Poddar and Swati Luthra. Learned counsel for the assessees submitted that a number of Benches of the Tribunal, including Lucknow Bench, has considered such issue of Long Term Capital Gain on various scrips and has allowed relief to the assessees and in this respect our attention was invited to the case laws relied on by the assessee, placed at pages 1 to 216 of the paper book. Reliance was further placed on the following judgments of various Benches of the Tribunal where under similar facts and circumstances, the assessees has been allowed relief: 1. Smt. Karuna Garg vs. Income Tax Officer, ITA No.1069/Del/2019 order dtd. 06.08.2019. 2. Reeshu Goel vs. Income Tax Officer, ITA No. 1691/Del/2019 Order dtd. 07.10.2019. 3. Swati Luthra vs. Income Tax Officer, ITA No. 6480/Del/2017 Order dtd. 28.06.2019 3.1 As regards the evidence for sale and purchase of shares, Learned counsel for the assessee submitted that assessees had purchased shares through stock broker Fair Intermediate Investment Pvt. Ltd. and the payment of which was made through banking channels and in this respect respective paper book pages were referred to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration for the scrip, under consideration has been debited to the account of the assessees on 22/04/2014. From the above statement of account, we further note that assessee had invested in shares of other companies also. Even the Assessing Officer has noted this fact in the assessment order at page 2 vide para 6 which for the sake of completeness is reproduced below: "6. A detailed show cause notice was issued on 17.12.2018 fixing the compliance date on 21.12.2018. Assessee has submitted reply of this show cause on 24.12.2018. in this reply assessee has stated that: "as per the statement of capital account of each year submitted, assessee is regular in investing amounts in different equities. During the period, assessee has traded in no, of equities such as: (a) Vipul (b) Vikas Eco (c) Safal Herbs (d) Wanbury (e) Aagam Capital (f) Asian Hotels (g) Nitin Fire (h) VMS Industries (i) Gulf Petro..etc. Investment in equity is made out through self study based on the recommendations received from newspaper, TV channels, sometimes from friends and sometimes from brokers. Purchase and sale of equity can only be done through stock exchanges, either from BSE or NSE,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....EBI registered broker and the transactions were subjected to Security Transaction Tax and proceeds of the sales, after deduction of such expenses, were credited to the bank accounts of the assessees. The authorities below has not commented on the veracity of such crucial evidence filed by the assessees and they have disallowed the claim of the assessees by holding that the broker, through whom the assessees had sold shares, was a tainted stock broker who was banned by SEBI in 2010. However, while holding so the authorities below has further observed that such ban was revoked by the SEBI and the only order remained in force was that the broker was not allowed to trade in its proprietary name. In this respect Para 7.5 of assessment order is relevant which for sake of completeness is reproduced below: "7.5 Further, it is seen that assessee Smt. Nisha Agrawal has traded into scrips of Shantanu Sheroy Aqua through Ashika Stock broking Lt. It is pertinent to note here that Ashika stock broking Limited along with two other stock brokers and promoters of 4 listed companies were banned by Securities Exchange of India (SEBI) vide its order dated 02 December, 2010 on account of price manipu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tigation and vide report dated 27/04/2015 had identified 84 companies which were engaged in the business of providing accommodation entries and name of the scrip on which the assessees had earned capital gain does not find its name in that list and neither name of broker finds place in the list of broker investigated by the Investigation Wing of the Department. 5.5 Learned CIT(A), while dismissing the appeal of the assessees, has relied on the following case laws: 1. Hon'ble Delhi High Court in the case of Udit Kalra vs. Income Tax Officer in I.T.A. No.220/2019 & CM No.10774/2019 2. I.T.A.T. Delhi in I.T.A. No.6717/Del/2017 3. Madras High Court in the case of Smt. Tharakumari vs. Income Tax Officer (Tax Case Appeal No. 128 of 2019) 4. Hon'ble Delhi High Court in the case of Suman Poddar vs. Income Tax Officer, I.T.A. No.841/2019 5. Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain vs. Income Tax Officer 6. Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT 214 ITR 801 (SC) 7. CIT vs. Durga Prasad More [1971] 82 ITR 540 5.6 As regards the reliance placed by learned CIT(A) on the case law of Suman Poddar and Smt. Sumati Dayal, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellants. 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 clinching evidences to disprove the evidences produced by the assessee. The report of Investigation Wing is much later than the dates of purchase / sale of shares and the order of the SEBI is also much later than the date of transactions transacted and nowhere SEBI has declared the transaction transacted at earlier dates as void. xx xx xx 30. Considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hese 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 support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded 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 preplanned 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 brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent sou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onclusion 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." 6. In the above noted judgment, the Hon'ble court has held that startling spike in the share prices 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, and not on suspicion alone. The Hon'ble court further distinguished the judgment in the case of Suman Podar which was in favour of Revenue. The Hon'ble court further held that case of Sumati Dayal u/s CIT was also not applicable to the assessee. The Hon'ble court further held that reliance placed by the Assessing Officer on the investigation report of Investigation Wing 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. 7. As regards the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hrough broker, GSSL and the address of the said broker was incidentally the address of the two companies. Based on these crucial facts, the Hon'ble Bombay High Court rendered the decision in favour of the revenue. None of these factors were present in the facts of the assessee before us. Hence it could be safely concluded that the decision of Hon'ble Bombay High Court supra is factually distinguishable." 7.2 As regards the reliance placed by Learned CIT(A) on the order of Udit Kalra (supra), we find that the above case law has been held to be distinguishable by Hon'ble Delhi Tribunal in the case of Karuna Garg in I.T.A. No.1069/Lkw/2019 vide order dated 06/08/2019 and further in the case of Swati Luthra vs. Income Tax Officer in I.T.A. No.6480/Lkw/2019 vide order dated 28/06/2019. In these two cases the Hon'ble Tribunal has again allowed relief to the assessee though from a different scrip but in the decisions they have held that the judgment of Hon'ble Delhi High Court in Udit Kalra was distinguishable as in that case the Hon'ble High Court has only dismissed the appeal as the Hon'ble High Court found that the issue involved was only a question of fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ources 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 formulated by Hon'ble High Court of Delhi in the said case and there is only dismissal of appeal in limine and the Hon'ble High Court found that the issue involved is a question of fact as held by Hon'ble Apex Court in Kunhayyammed vs State of Kerala reported in 245 ITR 360 and also in CIT vs. Rashtradoot (HUF) reported in 412 ITR 17. Even on merits and facts, the said judgment in the case of Udit Kalra vs ITO (supra) is distinguishable as in that case the scrips of the company were delisted on stock exchange, whereas, in the instant case, the interim order of SEBI in the cases of M/s Esteem Bio and M/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- ITA No. 1069/Del/2019, Order dt. 06.08.2019 9. Reeshu Goel vs. ITO - ITA No. 1691/Del/2019, Order dt. 07.10.2019. 10. Swati Luthra vs. ITO - ITA No. 6480/Del/2017, Order dt. 28.06.2019. 11. In all the above case laws decided by different benches of the Tribunal, the issue is same and the scrips involved in these cases are those identified by the investigation department as penny stock and are part of 84 companies identified by the department. The scrips involved in the present appeals are not even part of the 84 companies identified by the department and moreover the name of the broker through whom shares were sold by assessees do not find mention by the investigation wing. One of the reasons for rejection of the claim of the assessees is that some Directors of alleged dummy companies had joined the Board of the broker company. The reliance placed by authorities below on this reason is also misplaced as nothing wrong has been shown to have been done by the broker company by investigation wing of the Department. The ban which was imposed on this broker in 2010 was also lifted immediately and the assessees has sold shares only in 2016 i.e. after a period of six years and no ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee." 3. Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income Tax authorities and the Tribunal also took notice of the fact that some of the shares also remained in the account of the appellant. 4. We take notice of the fact that the assessee has a Demat Account maintained with the ICICI Securities Ltd. and has also furnished the details of such bank transactions with regard to the purchase of the shares. In the last, the Tribunal took notice of the fact that the statements recorded by the investigation wing of the Revenue with regard to the Tax entry provided were informed to the assessee despite giving him opportunity to meet such an allegation. In the overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under Section 260- A of the Ac....