TaxTMI 
TaxTMI 
2021 (2) TMI 1247
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....to the provision of Income Tax Act and rules made there 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. CI....
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.... of shares, share certificates ii. Evidence of payment for purchase of shares made 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 ....
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....he decisions cited in para 5 supra. In this case, the surrounding circumstances, as detailed above, establish that the purchase is not real. Thus, the entire transaction 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 ....
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.... submits that none of the descriptions, allegations, observations, findings, statements reproduced etc in the impugned order of AO are relevant or having any cogent, collaborative, identifiable or clinching 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 ar....
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....on is third party statement without there being any tangible material. The ld. AR submits that it is trite law that additions merely on the basis of suspicion, conjectures or surmises could not be sustained 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 abo....
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....also recorded wherein they had accepted that these companies were being used for providing bogus Long Term Capital Gains. These facts have been elaborately discussed by the CIT(A), and also by the AO in their respective orders , which 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 share....
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...., 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 The AO has rejected 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 b....
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....ged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO." 9.1. Further, we note that the AO has relied on the statement of his third parties without affording any reasonable opportunity to the assessee to cross examine those parties 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 e....
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.... purchased shares, but said transaction was done almost two year later. The assesses has paid STT on transfer of shares. The shares have been transferred to the buyer after payment of applicable stamp- duty and the share transfer agent endorsed the sale. The sale proceeds have been paid thorough bank. The 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....
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....with NKGSB Co-operative Bank Limited reflecting credit of shares purchased (enclosed in page 154 of Paper Book). c) Copy of approval letter from GIFL. d) Copy of allotment letter from GIFL for shares allotted to the assessee. e) Copy of share certificate issued by GIFL. f) Various events reported by GIFL to BSE. 6.1. The assessee submitted 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 br....
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.... bogus operators. We also find that the SEBI had passed on order dated 8.1.2018 in the case of GIFL, wherein it was found that the name of the assessee herein or the brokers through whom the assessee transacted were not even included in the said order as parties against whom any adverse inference / findings were found in respect of violation of provisions of SEBI. We find that SEBI had issued a show cause notice vide Reference SEBI/EAD12/SM/EE/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 ....
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....tatements recorded during survey, which does not have any evidentiary value. Reliance in this regard is placed on the decision of Hon'ble Madras High Court in the case of S.Khader Khan (2008) 300 ITR 157 (MAD) assumes significance, wherein it was held that :- "An admission is an extremely important piece of evidence , but it cannot be said that it is conclusive and it is open to the person , who made it, to show it has incorrectly been made and the person, 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)....
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....the open market. The ld AO sought to issue summons to those alleged purchasers of shares u/s 131 of the Act, which remain uncomplied by those parties. Based on this, the ld AO had drawn an adverse inference against the assessee disregarding the entire documentary evidences on record and the prevailing market practices with regard to purchase and sale of shares in the open market in online platform. It is not in dispute that the assessee had received the sale proceeds of shares from the registered broker through the stock 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 s....
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....e facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 5. In identical cases, the submission of the assessee, findings of the Assessing Officer, findings of the ld. CIT(A) and the conclusion of the Tribunal have been brought out as under:- 6. The addition was made by the Assessing Officer by observing as under:- i. The initial allotment of shares to beneficiaries is generally done through preferential allotment. ii. The market price of shares 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....
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....aken by the assessee was merely an accommodation taken for the purpose of bogus long term capital gains to claim exempt income. The authorities such as SEBI have after investigating such abnormal price increase of certain stocks, suspended certain scrips. c) The submissions of the assessee pointed out towards elaborate documentation such as : i. Application of shares. ii) Allotment of shares. iii) Share Certificates iv) Payment by cheques v) Filings before Registrar of Companies. vi) Proof of amalagamation of companies. vii) Copies of bank statement, viii) Bank contract notes. ix) Delivery instruction to the broker etc. d) 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....
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....s category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim in genuine or not. An alleged scam might have taken place 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....
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....Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence. 16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared 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 purpo....
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....f suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,--this also was a pure conjecture 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 co....
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....t he should be given the opportunity of crossexamining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC 708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448; Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131). 24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944, considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the Assessee had 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 s....
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.... Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: "4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the Assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the Assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating 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 Adjudic....
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....r view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal." [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of 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 inte....
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....GAUTAM PINCHA [ITA No.569/Kol/2017] order dated 15.11.2017 held as under vide Page 12 Para 8.1: "In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered 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 supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT (A) to be false or fictitious or bogus. The facts of the case and the evidence ....
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....e Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: "We note that the ld. AR cited plethora of the case laws to bolster his 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 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." f) The BENCH "A" OF KOLKATA ITAT in the case of SHALEEN KHEMANI [ITA No. 1945/Kol/2014] order dated 18.10.2017 held as under vide Page 24 Para 9.3: "We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our ....
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...., issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A)." h) The Hon'ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: "On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as so....
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.... 6.10. It would be pertinent to address the case law relied upon by the ld DR before us on the decision of Hon'ble Bombay High Court (Nagpur Bench) in the case of Sanjay Bimalchand Jain vs Pr.CIT (Nagpur) reported in (2018) 89 taxmann.com 196 (Bombay) dated 10.4.2017 on the impugned issue. From the facts of Sanjay Bimalchand Jain supra, we find that (i) in that case, the broker company through which the shares were sold did not respond to AO's letter regarding the names and address and bank account of the person who purchased the shares sold by the assessee ; (ii) Moreover, at the time of acquisition of shares of both the companies by the assessee, the payments were made in cash ; (iii) The address of both the companies were interestingly the same ; (iv) The authorized signatory of both the companies were also the same person ; (v) The purchase of shares of both the companies was done by that assessee through 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 assess....