TaxTMI 
TaxTMI 
2021 (12) TMI 586
X X X X Extracts X X X X
X X X X Extracts X X X X
....id. c) The capital gain arising on the sale of shares of AGIL amounting to Rs. 2,54,86,714/- is in genuine and represents unexplained credit u/s. 68 of the I.T. Act. 2. The Ld. CIT(A)-3, Vadodara has further erred in law and in facts in relying on certain enquiries made by him u/s.133(6), the outcome of which is never confronted to the appellant. 3. The Ld. CIT(A)-3, Vadodara has further erred in law and in facts in the finding that the appellant has not furnished the information sought by him vide letter dated 15.01.2018 even when such details / information is already on record. 4. The appellant pleads that the Ld. CIT(A) ought to have accepted that the income of Rs. 2,54,86,714/- as disclosed by the appellant being the income from Long Term Capital Gains is genuine and exempt u/s. 10(38) of the I.T.Act. 5. Your appellant craves liberty to add, alter, amend, substitute or withdraw any of the ground of appeal hereinabove contained. 3. The only issue raised by the assessee is that the learned CIT-A erred in holding that the capital gain of Rs. 2,54,86,714/- as bogus and therefore the exemption under 10(38) is not available. Further, the amount of capital gain was wrongly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ares & Stock Brokers Limited recorded under section 131 of the Act dated 08-04-2015, contended that such a statement was taken behind the back and the opportunity of cross examination was not provided which is against the principle of natural justice. Therefore, no credence can be attributed to such a statement while deciding the issue on hand. The assessee also contended that he has sold the shares through the involvement of his broker namely M/s Nirmal Bang Securities Pvt. Ltd. who has not been questioned by the Revenue. As such the assessee has no connection of whatsoever with Shri Sanjay Vora (Anand Rathi Share & Stock Brokers Ltd.) as far as the purchase and sale of shares made by him. 4.5 The transactions for the purchase and sale of the shares were carried out through the banking channel which explains the source of investments. On the sale of the shares on exchange through the brokers, the STT was duly paid. All the transactions relating to the purchase and sale of shares were carried out in good faith and he had no role of whatsoever in the alleged manipulation of the price of the shares. Likewise, there has not been brought any evidence by the Revenue against the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trading of the script of the company M/s AGIL due to abnormal rise in the price of the shares and huge trade volume during the period starting from January 2013. Furthermore, the assessee booked the required predetermined profit by selling only 75% of his holding. d. The statements of Shri Soumen Chowdary and Shri Sanjay Vora has been used as an evidence that the company M/s AGIL was used to generate bogus share capital. In fact there were many surveys and search operations carried out at Kolkata, Mumbai and Delhi by the Directorate of Investigation of the Income Tax Department to unearth the parties involved in generating the bogus share capital gain for certain class of beneficiaries against the commission. As a result of these operations, many companies were brought on record which were used for generating the bogus transactions including the company M/s AGIL. Accordingly, it was not necessary to provide the opportunity of cross examination to the assessee. e. The financial position of the company M/s AGIL was very weak and therefore no prudent businessman will make the investment in such company. However, the assessee has made the investments in such company and earned a hu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the share of M/s AGIL on preferential allotment basis and duly complied with the guideline of the SEBI and stock exchange with regard to offline purchase of shares. The assessee in support furnished copy of relevant guidelines issued by the SEBI. The assessee claimed that the payment for purchase of share was made through banking channel and during assessment proceeding, furnished copy of bank statement reflecting payments toward share purchase. Hence the AO's finding that sources of payment for share was not proven is factually incorrect. 5.2 With regard to the AO finding that the transaction of purchase of share is not in conformity with SEBI circular no. SMDRP/Policy/CIT-21/99, the assessee submitted that in the impugned circular the negotiated deal including cross deal is banned in connection of dealing in Government securities only. The assessee in support of his contention furnished the copy of impugned circular and highlighted the para 2.1 of the impugned circular where the term negotiated deal has been defined. 5.3 The assessee further submitted that the AO has relied upon the statement of certain person namely Shri Sanjay Vohra and Shri Soumen Chaudhry and reproduced th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... credited an amount of Rs. 2,54,86,714/- in the form of exempt income u/s 10(38) of the Income Tax Act. As shall be evident the issue is essentially factual, revolving or centering around as to which of the two inferential findings are maintainable in law, i.e., in view of the surrounding facts and circumstances of the case. The only charge is qua the genuineness of the transaction/s, and which the appellant could not able to give any supporting documentary evidence as envisaged by the A.O that no details of physical delivery of shares and transactions slips. That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining the genuineness, stands since settled by the apex court in Sumati Dayal (supra), relied upon, wherein the apex court, in declaring the transaction as non-genuine, discarded a host of documentary evidences filed or relied upon by the assessee-appellant. That documentary evidence are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....18 has furnished copy of returns of Alpha Graphics India Ltd. for A.Y.2012-13 to 2017-18. For A.Y.2012-13, the A.O has made addition on account of unexplained increase in share capital & increase in reserve & surplus of Rs. 18.00 Crore, Amortization expenses debited in P & L Account of Rs. 17,69,656/- and cash deposit of Rs. 4,50,000/-. For A.Y.2014-15, the A.O has made addition on account of unsecured loans u/s.68 of the Act of Rs. 1.49 Crore. The said company has actually not done any business and can be treated as a "Shell Company" when we consider the financial transaction of the same. 6.14 It needs to be appreciated that what is essentially under cloud, and being seriously doubted as to the genuineness, is the gain stated to arise on the transaction. It is the gain which is abnormal, i.e., both qua the scrip; its' trading and, thus, its quantum, and unexplained, besides being tax exempt, and which is independent of its purchase. In fact, the A.O. states precisely that even assuming the purchase as genuine, the sales, given the high rates for such penny stocks, with no real buyers, are bogus. The incidental question that arises is the date when the shares were demateriali....
X X X X Extracts X X X X
X X X X Extracts X X X X
....statements/details obtained by the investigation wing of Calcutta was provided. Thus, in the absence of such verification, there cannot be any addition to the total income of the assessee by treating the long-term capital gain as unexplained cash credit under section 68 of the Act. 6.2 On the contrary, learned DR vehemently supported the order of the authorities below. 7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the long term capital gain declared by the assessee on sale shares M/s AGIL for Rs. 2,54,86,714/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph. Subsequently, the learned CIT (A) upheld the finding of the AO. 7.1 Indeed, the price of the share of M/s AGIL was increased from Rs.18 to Rs. 40 within a span of 27 months which was not believed by the authorities below on the principles of preponderance of human probabilities in the given facts and circumstances. The rise in the price of the scripts of a company, having no financial base/busi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be proved with evidence, by the Revenue. 7.4 We further note that authorities below have alleged that share purchase contract note was not provided. Similarly mode of payment for purchase of share was also not explained. In this regard we note the assessee vide letter dated 27th December 2016 before the AO has furnished following detail: (a) Ledger account of investment in share of AGIL placed on page 40 to 42 of paper book. (b) Share certificates of M/s AGIL were placed on page 43 of the paper book. (c) Application for dematerialization of share of AGIL was placed on page 44 of paper book (d) Bank statement showing transaction of purchase and sale of share of AGIL placed on page 68 to 82 of paper book. 7.5 Thus, we are of the view that finding of the authorities below to this extent is contrary to the facts on record. Likewise, the assessee has been able to produce the necessary document with regard to purchase of share through banking channel. 7.6 We also note that there was no dispute raised by the Revenue with respect to the following facts: (i) The payments are received through account payee cheques. (ii) Shares were sold through stock exchange after the paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. In holding so we draw support and guidance from the judgment of Hon'ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under: "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 concern....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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." 7.9 Respectfully following the judgment of Hon'ble Delhi High Court (Supra), we hold that in absence of any specific finding aga....