TaxTMI 
TaxTMI 
TaxTMI 
2021 (2) TMI 1247
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....re under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding the addition of Rs. 1,86,64,374/- made to the returned income by treating genuine LTCG earned on purchase and sale of shares claimed as exempt under section 10(38) of the IT act as unexplained credit under section 68 of the IT Act, 1961 and the reason assigned for doing so are wrong and contrary to the provisions of Income Tax Act and rules made there under. 3. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding addition of Rs. 3,73,287/- made to the returned income by wrongly assuming that commission has been paid to earn LTCG and the reason assigned for doing so are wrong and contrary to the provisions of Income Tax Act and rules made there under. 4. The Appellant craves leave to add to, amend, alter or delete any of the above grounds of appeal on or before the date of hearing." 3. We are first adjudicating the ground No.2. The issue raised in ground No.2 is against the order of Ld. CIT(A) upholding the addition of Rs. 1,86,64,374/- by Ld. CIT(A) which was made by the AO under section 68 of the Act by rejecting the c....
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....by account payee cheques, copy of bank statements iii. Copy of Demat statement reflecting purchase iv. Copy of Demat statement showing sale of shares v. Copies of contract note of sales of shares vi. Copy of bank statement reflecting sales receipt Finally, the AO, after rejecting the various contentions and submissions of the assessee and in a detailed finding recorded in the assessment order, came to the conclusion that the assessee has allegedly obtained long term capital gain by prearranged and well organized trading in the shares of M/s. Four K Animation Ltd. and accordingly rejected the claim of the assessee under section 10(38) of the Act resulting into an addition of entire sales consideration of Rs. 1,86,64,374/- to the income of the assessee in assessment framed under section 143(3) r.w.s. 147 of the Act, 1961 vide order dated 31.12.2017. 5. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). In the appellate proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee after taking into account the details/explanations submitted by the assessee by observing and holding as under: "5.7 CONCLUSION 5.7.1 The facts of....
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....ion is a sham transaction and the action of the Ld AO in holding the transaction to be bogus is upheld. 5.7.6 TheLd.AO has added Rs. 1,86,64,374/- being sale proceeds of the sale of shares of M/s Pine Animation Ltd. which was held to be sham transaction, against which the appellant had claimed Long Term Capital Gain claimed as exempt u/s 10(38]. Addition of Rs. 3,73,287/- u/s 69C of the Act, being 2% commission paid for the accommodation entries is also held to be reasonable and is upheld. Therefore, the action of the Ld. AO is upheld and the grounds of appeal 1 and 2 are dismissed. 5.8 Ground of appeal No. 3 is with respect to levy of penalty u/s 271(l)(c}. Levy of penalty is consequential in nature and is the discretion of the AO. This ground of appeal being premature is not adjudicated upon and is dismissed. 5.9 Ground of appeal No. 4 is general in nature and is therefore not adjudicated upon. 6. In the result, for the statistical purposes, the appeal filed for the A.Y. 201415 is treated as dismissed." 6. The Ld. A.R. submitted that all the conditions for claiming exemption u/s 10(38) of the Act are fully satisfied by the assessee while claiming the exemption in the inc....
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....nching to the LTCG realized by the appellant. The ld AR submits that the appellant had never transacted with any operator or such intermediary in the process of carrying out investments and further that the alleged operators and their records do not in any manner mention any connection with appellant. The ld AR submits that the shares were duly allotted to the appellant and were recorded into the D-mat account upon such purchase/allotment. Shares were sold on stock exchange through regular registered brokers of assessee under screen based trading where the seller and buyer of shares are wholly unaware of the identity of the other person. STTs were paid at the time of sale of shares and proceeds were received into bank accounts of the assessee only through proper banking channel. 6.3. The ld AR submits that based on inquiry and investigation by Investigation Wing of the deptt., the AO has surmised that assessee routed his black money without establishing any money trail. The ld AR argued that the Ld. AO has hopelessly failed to establish that the assessee has paid his unaccounted money to any of the parties referred by the Ld. AO in the impugned AO. None of the replies to the quest....
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....ed in the eyes of law as held by Hon'ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151). The ld AR submitted that the suspicion however strong could not partake the character of legal evidence as held by Hon'ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). 6.5. The ld AR submits that movement in prices of shares is governed by several factors without there being any nexus to the projects, projection etc and this fact gets clearly established if one refers to the present movement in shares of several companies. The Ld. AO has failed to establish any link to the process of rigging and manipulating of prices of shares in connivance with parties whose names are mentioned in the impugned assessment orders. 6.6. The ld AR also argues that the provisions of section 68 of the income tax Act, 1961 deals with a case, where any sum found credited in the books of accounts of an assessee in any financial year and assessee offers no explanation about the nature and source or explanation offered by the assessee is not satisfactory in the opinion of the AO, then sum credited may be charged to tax for that assessment year u/s 68 of the Act which is not th....
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....are the subject matter of the present appeal. The ld DR even refers to the SEBI report 18.11.2019 and submitted that the share as was purchased and sold by the assessee was held to be rigged by the operators/exit providers. The ld DR takes us through various findings of the SEBI and submitted that the shares prices were clrearly rigged by the operators in an organized manner on the stock exchange so that undue bogus gains are realized in favour of the sellers including the assessee. 8. In the rejoinder, the ld AR submitted that SEBI order has nothing to do with the long term capital gain earned by the assessee. The ld AR submitted that SEBI is a forum which regulates the markets so that the interest of the investors are protected and in no way goes into the issue of bogus or non bogus capital gain. 9. We have heard the rival submissions and perused the material on record. We find that in this case the assessee has applied for 20,000 equity shares of Rs. 3 each of M/s. Four K Animation Ltd. in the preferential allotment for a consideration of Rs. 60,000/- which were allotted on 7.12.2012. These shares were credited in the D-,mat account of the assesse on 01.05.2012. Thereafter, th....
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....the claim of the assessee by disbelieving all the above documents which are a third party documents and treated the sale of shares as unexplained cash credit under section 68 of the Act on the ground that assessee has earned this long term capital gain by trading in penny stock company and relied heavily on the investigation report of Directorate of Investigation Wing, Kolkata, upward movement of share prices, statements recorded by the Directorate of Investigation Wing, Kolkata of various operators/exit providers. Thus we note that AO has relied mainly on the statement of third parties and circumstantial evidences and no substantive and specific material was brought on record to prove these allegations. Similarly Ld. CIT(A) has reproduced the entire order of AO and upheld the same by holding that assessee was beneficiary of accommodation racket and doubted only the manifold increase in the share price by rejecting the facts on record and various evidences corroborating those facts. The assessee has furnished various documents as stated hereinabove to corroborate the claim under section 10(38) of the Act. We note that assessee has furnished all the details qua bank accounts, D-Mat ....
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....es which is in violation of principle of natural justice as has been held by the Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE (CA) No.4228 of 2006 wherein it was held that not allowing assessee to cross examine the witness by adjudicating authority though the statements of 6 witnesses were made the basis of the impugned order is nullity in as much as which amounts to violation of principles of natural justice because of which the assessee was adversely affected. Besides the addition merely on the basis of suspicion, conjuncture and surmises can not be sustained. The case of the assessee finds support from the decision of Hon'ble Apex court in the case of Omar Salay Mohamed Sait V/s CIT (1959) 37 ITR 151(SC). The Hon'ble Apex Court in the case of Umacharan Shaw & Bros. vs CIT (1959 37 ITR 271) has held that suspicion how so far strong could not take the character of legal evidence. Thus we note that none of the parties alleged by the Revenue such as broker, operator, directors, exit providers etc. whose statements were recorded by the Directorate of Investigation Wing, Kolkata stated the name of the appellant. The case of the assessee is supported by a series ....
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.... sale has been made on the prevailing quoted rate in stock exchange on the date of sale. As regards allegation of the AO regarding jacking of shares price through group of persons involved in the alleged scam, we find that although SEBI has suspended trading particular Script in BSE/NSE pending enquiry, but after enquiry suspension was revoked and only after the script, was again starts trading in exchanges, the assessee has purchased shares. From the above, it is very clear that the observations of the AO in his assessment order on the basis of report of investigation wing, Kolkata is a general observation of modus operandi of certain brokers may be involved in alleged scam of LTCG, but it cannot be a conclusive evidence to draw an adverse inference against the assessee of having benefited from so called alleged scarn. No doubt, an alleged scam may have taken place. But, it has to be seen whether the assessee is part of an alleged scam and he had any direct or indirect role in alleged scam. Unless, the evidences in the possession of the AO directly or indirectly linked to the assessee, it is difficult to implicate the assessee in the alleged scam. This is because, suspicion howeve....
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....ubmitted the following details with regard to sale of shares:- a) Copy of demat statement reflecting the sale of shares. b) Copies of Contract Notes issued by both the brokers for sale of shares. c) Copy of Holding Statement for financial years 2012-13 and 2013-14. d) Price chart of GIFL from the date of purchase of shares till the recent period. e) Copy of relevant extract of bank statement of the assessee reflecting the sale proceeds received from the broker and credited to the bank account. 6.2 We find that the assessee pleaded that in an online platform, there would be no nexus between the purchasers and the seller and the delivery of shares and payments would be made through their respective stock brokers. Hence the ld AO ought to have summoned the assessee's brokers to examine the authenticity of the sale of shares of GIFL and the amount received on sale of shares. We find that the ld AR also placed evidences on record to prove that the said company GIFL is still listed in the stock exchange and shares of this company are being traded and SEBI had not passed any adverse order against the said company. We find that the details of revenue and profits of GIFL for var....
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....693/25/2018 dated 8.1.2018 which are enclosed in pages 252 to 266 of the paper book. In pages 257 and 258 of the Paper Book, the list of parties to whom show cause notices were issued by SEBI is listed out. In the entire list, neither the name of the assessee nor his lbrokers were included. Later there was another show cause notice vide Reference EFD/DRA3/OW/NB/6663/2018 dated 1.3.2018 was issued by Enforcement Department of SEBI mentioning the list of parties to whom show cause notices were issued. Even in this list, the name of the assessee or his broker was not included by SEBI. Hence it could be safely concluded that SEBI did not allege any wrong doing on the part of the assessee or his brokers with regard to carrying out transactions in sale of shares of GIFL in open market in online platform. In this subsequent show cause notice dated 1.3.2018, the SEBI also takes records the fact of issuance of shares on preferential allotment basis on 12.6.2012 by GIFL to various parties (which includes the assessee also though not named in the SEBI show cause notice). In this show cause notice also, the SEBI only accused Notice No. 1 to 7 listed in the said notice which admittedly does not....
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.... making the statement should be given proper opportunity to show that it does not show the correct state of facts." The materials found in the course of survey could not be the basis for making any addition in the assessment. The word "may" used in section 133A(3)(iii) makes it clear that the material collected and statement recorded during the survey u/s 133A of the Act are not conclusive piece of evidences by itself. The aforesaid decision was affirmed by the Honourable Supreme Court in CIT , Salem vs S.Khader Khan in Civil Appeal No. 13224 of 2008 & 6747 of 2012 dated 20.9.2012, wherein their Lordships of Supreme Court held as under:- CIT vs S Khader Khan Son reported in (2012) 25 taxmann.com 413 (SC) / 210 Taxman 248 (SC) and 254 CTR 228 (SC) "Heard Counsel on both the sides. Leave granted. The civil appeal filed by the department pertains to Assessment Year 2001- 02. In view of the concurrent findings of fact, this civil appeal is dismissed. " In any case, we find that these statements were never subjected to any cross examination by the assessee despite the request made by the assessee in this regard, which has been summarily rejected by the ld AO. This fact is al....
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....k exchange only and not from the alleged purchasers of shares directly. Moreover, the ld AO states that the assessee had sold the shares at Rs. 211.76 per share whereas the average sale price of the assessee was only Rs. 89 per share. 6.8. We find that the ld DR made general submissions with regard to the investigations carried out by Kolkata Income Tax Department after identifying 84 scrips to be penny stocks and the modus operandi adopted by those scrips with the connivance of various entry operators, brokers and stock exchange. We find that the ld DR was not specifically able to controvert the documentary evidences filed by the assessee for purchase and sale of shares and various other documents referred to in the Paper Book more particularly the SEBI show cause notice as detailed hereinabove, except stating that SEBI show cause notice was issued in the name of GIFL, the scrip in which assessee dealt. The ld DR also sought permission from the Bench to grant time for filing his written submissions with regard to the entire appeal. No such written submission was filed by the ld DR till the date of dictation of this order. The ld DR drew our attention to the statement recorded fr....
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....hares of these companies rise to very high level within a span of one year. iii. The trading volume of shares during the period, in which manipulations are done to raise the market price, is extremely thin. iv. Most of the purported investors are returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their shares. vi. The sharp rise in market price of the shares of these entities is not supported by fundamentals of the company or any other genuine factors. vii. An analysis in respect of persons involved in transactions apparently carried out in order to jack up the share prices has been done in respect of 84 companies. It has been noted that many common persons/entities were involved in trading in more than 1 LTCG companies during the period when the shares were made to rise which implies that th....
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....The elaborate paper book is filed to strengthen the matter relevant to bogus claim of LTCG, and this is clearly been schemed and pre-planned with malafide intention. Therefore, all these documents are not evidence. e) The transactions are unnatural and highly suspicious. There are grave doubts in the story propounded by the assessee before the authorities below. Banking documents are mere self-serving recitals. 9. Thereafter he referred to a number of judgments relating to human behavior and preponderance of human probabilities and upheld the addition made by the Assessing Officer by relying on what he calls rules of "Suspicious transactions". 10. The assessee in this case has filed the following evidence before the Assessing Officer in support of his contentions:- a) Copies of bills, evidencing purchase of shares b) Copies of contract notes of sale of shares c) Bank statement copies d) Copy of Ledger A/c of broker e) Demat Statement etc. The Assessing Officer has just relied on general observations. No evidence was controverted by the Assessing Officer. 11. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the ca....
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....on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in quesiton was part of this scam. The chain of events and the live link of the assesee's action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assesee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, 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....
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....with respect to bogus capital gains transactions. However we do not find that, the assessing officer as well as the Ld. CIT(A), have 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. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any finding spe....
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....ture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclu....
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.... specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to crossexamine, would amount to a denial of the right to be heard i.e. audi alteram partem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the government servant, he will not be able to conduct an eff....
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....ting 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 crossexamination 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 extraction the Appellant wanted from them. 6. As mentioned above, the Appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is m....
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....f relevant materials. That being the position, Tribunal having analyzed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed." b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No. 292/JP/2017] order dated 06.04.2018 held as under vide Page 9 Para 3: "We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account." c) The Hon'ble Punjab and Haryana High Court in the case of PREM PAL GANDHI [ITA-95-2017 (O&M)] dated 18.01.2018 at vide Page 3 Para 4 held as under: "..... The Assessing Officer in both the cases added the appreciation to the assessee's' income on the suspicio....
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....AO nor by the ld. CIT (A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act." Further in Page 15 Para 8.5 of the judgment, it held: "We note that the ld. AR cited plethora of the case laws to bolster is claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT (A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT (A) was not justified in upholding the addition of 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." e) The BENCH "D" OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as un....
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....the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act." g) The BENCH "H" OF MUMBAI ITAT in the case of ARVIND KUMAR JAIN HUF [ITA No.4682/Mum/2014] order dated 18.09.2017 held as under vide Page 6 Para 8: "......We found that as far as....
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....n(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed." i) The Hon'ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: "The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank." j) The Hon'ble Supreme Court in the case of PCIT vs. Teju Rohitkumar Kapadia order dated 04.05.2018 upheld the following proposition of law laid down by the Hon'ble Gujarat High Court as under: "It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impex also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assess....
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....safely concluded that the decision of Hon'ble Bombay High Court supra is factually distinguishable. 6.11. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs Mukesh Ratilal Marolia in ITA No. 456 of 2007 dated 7.9.2011 had held as under:- 5. On further appeal, the ITAT by the impugned order allowed the claim of the assessee by recording that the purchase of shares during the year 1999- 2000 and 2000-2001 were duly recorded in the books maintained by the Assessee. The ITAT has recoded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6. Similarly, the sale of the said shaers for Rs. 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt Ltd and M/s Scorpio Management Consultants Pvt Ltd cannot be disputed, b....