TaxTMI 
TaxTMI 
2022 (1) TMI 919
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....,38,89,313/-. The assessee purchased 65,000 equity shares of M/s. Transcend Commerce Ltd. for a consideration of Rs. 6,50,000/- on 16.10.2012 from Subh Mangal Sales Pvt. Ltd. at face value of Rs. 10 each. The said shares were credited in the D-mat account of assessee with M/s. Kantilal Chaganlal Securities Pvt. Ltd. on 13.12.2012 along with other shareholdings of assessee. M/s. Transcend Commerce Ltd. was merged with M/s. S.R.K. Industries Ltd. as per the order of Hon'ble Bombay High Court dated 21.12.2012 and the assessee was allotted 1,44,300 shares of Rs. 10 each of M/s. S.R.K. Industries Ltd. The said shares were subdivided and face value of the share was reduced to Rs. 5 per share on 14.10.2013 and consequently the assessee was allotted 2,88,600 shares of M/s. S.R.K. Industries Ltd. These shares were sold at Stock Exchange Mumbai through registered broker M/s. Vishesh Capital Pvt. Ltd. between 16.12.2013 and 10.01.2014 and STT was paid. The total sale consideration realized from of sale of shares was Rs. 5,46,21,248/-. The assessee after reducing the cost of purchase of Rs. 6,50,000/- calculated the long term capital gain of Rs. 5,38,89,313/- which was claimed as exempt under ....
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....vestigation by Directorate of Investigation Kolkatta. Thus the findings of enquiry/investigation report from Kolkata Investigation Wing are squarely applicable to the case of the appellant. Thus it is clear the action of the appellant is nothing but is premeditated contumacious conduct, surreptitiously done for specific reasons for converting unaccounted money of the appellant under the guise of Long Term Share Transaction claiming as exempt u/s.10(38) of the Act. This is clearly a tax evasion from the above analysed facts and surrounding circumstances, human conduct, preponderance of probability. The A.O. has clearly established that the impugned transactions are not made for an investment i.e. the motive is not derive income but to earn profit that too, by an arrangement. It is a manipulated transaction in collusion with broker/entry operator to claim exemption u/s. 10(38) of the Act. This is in accordance with the ratio laid by the Hon'ble Apex Court in Sumati Dayal Vs. Commissioner of Income-Tax, 214 ITR 801 (SC), that" the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authori....
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....STT etc. then the mere fact that the scrip has risen many time can not be a sole ground for treating the transactions as bogus. The Ld. A.R. in defense of his arguments relied on a series of decisions namely; 1. Smt. Geeta Khare vs. ACIT in ITA No.4267/M/2018 A.Y. 2014-15 and Sashikant B. Mhatre HUF ITA No.694/M/2018 order dated 29.05.2019 2. Smt. Bhavna B. Kothari vs. ITO in ITA No.3740/M/2019 order dated 11.09.2020 The Ld. A.R. submitted that in both the above decisions the same scrip of M/s. S.R.K. Industries Ltd. was involved and was decided in favour of the assessee. The Ld. A.R. also relied on a series of other decisions namely; (1) Sailesh Jain HUF vs. ITO in ITA No.6068/M/2019 A.Y. 2014-15 (2) Ramprasad Agarwal vs. ITO 100 taxman.com 172 Mumbai (3) ITO vs. M/s. Arvind Kumar Jain HUF in ITA No.4862/M/2014 order dated 18.09.2017. The Ld. A.R. submitted that in all the above decisions the co-ordinate Bench of the Tribunal has held that where assessee has filed all evidences of purchase and sale, cover notes, payment proof, D-mat account etc. and AO has simply relied on the report of the investigation wing report that scrip price has increased manifold, the long ter....
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....recognized stock exchange and is evidenced by the documentary evidences and mere fact that the scrip price has risen many times can not be sole factor for treating the same as bogus. We also note that the co-ordinate Bench of the Tribunal in the above two cases namely Smt. Geeta Khare vs. ACIT (supra) and Smt. Bhavna B. Kothari vs. ITO (supra), the scrip involved was M/s. S.R.K. Industries Ltd. and the co-ordinate Bench of the Tribunal has held the long term capital gain to be genuine and not bogus. The operative part in the case of Smt. Geeta Khare vs. ACIT (supra) is extracted below: "7. We have heard the rival submissions. The primary facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the ld AO had placed reliance on certain statements recorded by the Investigation wing of Kolkata Income Tax Department during some survey proceedings conducted in third party cases. We find that in none of those statements, the name of the assessee or the name of the brokers through whom assessee had transacted were mentioned. We also find that there is no mention of any connivance on the part of the assessee with the share brok....
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..... of No. of Shares Shares traded traded 100 4778156 500 20544716 200 1200905 100 2982153 300 558044 100 48031 35 25842 62156 188670 528 1755017 172 5965728 941 4542919 219901 800299 445841 2361304 134745 4568884 863657 2135413 2220786 3212730 2208340 4916774 4197610 3271357 6277016 5489375 10156920 9210300 13464417 4243196 3659 14937 Total 40254365 82818409 7.1.1. From the above tabulation, it could be seen that the assessee had exited from the market by selling the shares once there was heavy selling of the shares of SRK Industries Ltd on the fear element being setting in for further reduction of prices. We find that these after Jan 2014, these shares were heavily traded in the open market. In any case, it is not for the revenue to decide as to at what time the assessee should exit from his holding of shares in the open market. It is for the assessee to decide. The revenue cannot step into the shoes of the assessee and decide the purchase and sale transactions of shares and the timing together with the pricing thereon. Reliance in this regard is placed has been rightly placed by the ld AR on the decision of Hon'b....
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....s, adverse inference was drawn by the ld AO on the assessee. We find that the ld AR had already submitted that in an online platform of trading of shares in the open market through a registered stock broker, it is not possible for the assessee to even know the name and address of the purchasers when the assessee sells the shares in the open market. In any case, merely because the alleged purchasers list given by the ld AO in his assessment order had not responded to notice u/s 133(6) of the Act, no adverse inference could be drawn on the assessee for the default committed by those alleged purchasers. The ld AO could have very well resorted to issuance of summons u/s 131 of the Act to those alleged purchasers and / or take necessary action on them in the manner known to law for non-compliance from their side. We hold that the assessee need not discharge her onus of bringing on record the alleged purchasers especially when the shares were sold in the open market in an online platform. Accordingly, the assessee need not prove the identity, creditworthiness of those alleged purchasers of shares and the genuineness of transactions within the meaning of section 68 of the Act. The assesse....
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.... months and later sold it in open market in online platform at prevailing market prices. 7.5. We find that the ld AO had observed that the assessee had traded only in the shares of SRK Industries Ltd. This is factually incorrect statement of the ld AO. Moreover, the ld AO had during the course of examination of the assessee on oath u/s 131 of the Act had even posed a question vide Question No. 24 that assessee had purchased very few shares of well reputed companies during the year like Indus Ind Bank, Crompton Greaves, Larsen and Toubro etc. We find that the ld AO in para 13.4 of his order had observed that on examination of Shri Shivajirao Jondhale on oath u/s 131 of the Act, it was noticed that he had also invested in the shares of SRK Industries Ltd only based on an advice of his friend. Based on this, the ld AO had concluded that the whole basis of purchase of this share is a preknowledge of rigging of price and subsequently taking accommodation entry for Long term capital gains. We find from the demat statements for the period 1.4.2012 to 31.3.2013 and 1.4.2013 to 31.3.2014, the assessee had dealt in various reputed scrips and had duly dematted the same and all these transac....
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....Rs. 5,50,159/- and claimed exemption u/s 10(38) of the I. T. Act. Therefore, all of a sudden earning of such huge exempted income from LTCG requires for examination in detail. Return data analysis of past years shows the following picture:- Assessment Year Income from salary Short Term Capital Gain Income from other Source Gross Total Income Total Income Exempt LTCG 2012-13 0 0 8,63,168 8,63,168 7,43,168 NIL 2013-14 2,40,000 0 3,98,213 6,38,213 5,36,940 NIL 2014-15 0 4,80,227 6,12,677 11,76,904 10,61,900 5,50,158 4. Main issues involved: The main reason for selection of scrutiny of this case was to examine the earning of suspicious capital gain from transaction in penny stock (input given by Investigation wing). In course of scrutiny, it is seen that assessee had shown income from Long Term Capital Gains from sale of shares of M/s SRK Industries Ltd. to the tune of Rs. 5,50,158/- on sales of shares for Rs. 5,57,658/-. This Long Term Capital gain was claimed exempt from Income tax. The assessee had declared following calculation regarding income from long term capital gain on sale of shares exempt from taxation u/s 10(38): Name....
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.... earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this 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 ....
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....on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar 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 a....
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....ther commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of 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 Incometax 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 busines....
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....portunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining 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 crossexamination of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern,....
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.... with law, as cross-examination is an integral part and parcel of the principles of natural justice." b) Andaman Timber 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 crossexamine, 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 Asses....
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....also declared in its books of accounts and offered for taxation. In our 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....
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.... d) The BENCH "D" OF KOLKATA ITAT in the case of 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 bogu....
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....s 10(38) of the 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 considered opi....
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....ded 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 sought to be raised in the....
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.... Baid vs. ACIT, Circle-35; ITA No. 1237/Kol/2017; order dt. 18/08/2017 * Kiran Kothari HUF vs. ITO, ITA No. 443/kol/2017, order dt. 15/11/2017 The Hon‟ble Jurisdictional High Court had in the following cases, upheld the claim of the assessee:- * CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 * CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC)dt. 08/05/2017 * CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.04.2009 6.2. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition made u/s 68 of the Act, on account of sale of shares in the case of both the assessees. The consequential addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed. 7. In the result, appeal of the assessee is allowed. Kolkata, the 25th day of July, 2018. Sd/- [J. Sudhakar Reddy] Accountant Member Dated : 25.07.2018" 7.8. It would be pertinent to address the case law relied upon by the ld DR before us on the decision of Hon'ble Bombay ....
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....of the Revenue that the shares in question are still lying with the Assesse nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s Richmand Securities Pvt Ltd regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s Richmand Securities Pvt Ltd held that the sale transaction was genuine. 7. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount of Rs. 1,41,08,484/- represented unexplained investment under section 69 of the Income Tax Act, 1961 cannot be faulted. 8. In the result, we see no merit in this Appeal and the same is dismissed with no order as to costs. 7.10. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA was not justified in upholding the action of the ld AO in bringing the long term capital gains on s....