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2022 (1) TMI 1037
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....al Gain To introduce unaccounted own money as exempt income in the form of LTCG on sale of shares and the assessee being fully aware of it is also a part of this manipulation. 2. The Ld. Commissioner of Income Tax (Appeals)-1, Kanpur has erred in law and on facts without appreciating the facts that the issue involved pertains to organized scam/tax evasion activity and unique modus operand of this embezzlement for which CBDT's Circular No. 23 of 2019 dated 06.09.2019 and subsequent O.M. dated 16.09.2019 mandate that the appeals may be filed on merits in case of the assessee claiming bogus LTCG/STCL through Penny Stocks. 3. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous, unjust and bad in law be vacated and the order dated 30.12.2016 passed u/s. 143(3) of I.T. Act of the Assessing Officer be resorted." 3. The ld. DR at the outset invited our attention to the petition for condonation of delay in these appeals, which happened to be for 479 days. Explaining the reasons for delay in filing the appeal, the ld. AR submitted that earlier the Pr. Commissioner of Income Tax had not recommended the proposal for filing appeals before ITAT on....
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....s. u/s. 10(38) of the Act and therefore it was prayed that the appeal of the Revenue may be heard on merits. 6. Heard the parties on the petition for condonation of delay and on the preliminary objections by ld A.R. and it was decided to condone the delay in filing the appeals and preliminary objections raised by ld A.R. was also rejected and ld D.R. was asked to proceed with his arguments. 7. The ld. DR submitted that the assessee has raised long term capital gain on the sale of little known penny stocks, the prices of which were manipulated with the help of certain operators and stock brokers and therefore the assessee had introduced their own money in the form of arranged long term capital gains. It was submitted that such organized tax evasion racket has been unearthed by the Department and therefore, the Assessing Officer had rightly disallowed the same and had made the additions u/s. 69A of the Act which the ld. CIT(A) has deleted by ignoring the phenomenon of arrangement of dubious transactions. The ld. AR on the other hand submitted that the ld. CIT(A) has deleted the additions made by the Assessing Officer by holding that the Assessing Officer has not carried out nec....
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.... shares of Neil Industries Ltd.. The assessee purchased 2000 shares of M/s. Octagon Commodity Pvt. Ltd. through offline transaction from Nandani Mittal & Co. transaction for which the payment was made @ Rs. 30 per share at the total cost of Rs. 60,000/-. Appellant paid through his Saving Bank Account. The company Octagon Commodity later merged amalgamated with Neil Industries Ltd. The shares of Neil Industries were credited to their DEMAT account maintained with Sajendra Mookim. Thereafter the assessee sold the shares on 02.04.2013 for a total consideration of Rs. 5,41,223/- during the year under review and sold through the registered stockbroker M/s. Sajendra Mookim through Kolkata Stock Exchange in an open market transaction after paying STT, and money paid and received was through proper banking channels. The said broker is a regular broker of the assessee for purchase and sales of shares. The purchases and sales of shares are after payment of STT, All amount paid and received, was through proper banking channels. During the course of assessment proceedings, appellant has filed all the contract bills issued by the broker. The assessee held these shares for more than a y....
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....Os for taking further necessary action as per law. On perusal of the facts mentioned in the assessment order it is an important fact in this case that there is no mentioning of the share broker M/s. Safal Finstock Ltd. and MPSE Securities Ltd in the investigation report and there is nothing adverse reported pertaining to the scrip of M/s. Neil Industries Ltd. AO on the basis of the above unrelated details mentioned in the assessment order held that since the shares in which the appellant has done trading are of a penny stock company, which resulted in unreasonably high Long Term Capital gains, that were purchased by the assessee more than one year back from the open market on normal rates, these transactions are bogus. It is clear from the above facts and circumstances that there is no evidence at all against the appellant available on record for the AO to come to this conclusion. Apparently as per data available on record there is no adverse evidence at all either in the form of any general or specific statement by the principal officer of either M/s. Sajendra Mookim or Kolkata Stock Exchange or of M/s. Neil Industries Ltd. against the appellant or again....
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....al purposes, won't make transactions undertaken by appellant as bogus, making it liable for any addition, in absence of anything specific or remotely general against the appellant. Here the integrity of the promoter or the broker or the manner in which the brokerage operations were conducted is not questioned by AO, There is no effort made by AO to know the factual position for the case of appellant, by examining anyone who admitted before investigation wing officers that they are manipulating the Long Term Capital Gain transactions. AO has not made any effort to verify the documents placed on record by the assessee in support of the claim. AO's observation and conclusion are merely based on the information available on ITD system and modus operendi narrated by investigation wing pertaining to the whole scam unearthed. It is clear and now well settled as it appears from the plethora of case laws relied upon by appellant that these transactions in penny stocks that are fully supported by the documentary evidences could not be brushed aside on mere suspicion and surmises. AO has to bring specific adverse material on record against specified transactions of sale/purchase of sh....
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....sources through broker M/s. MKM Finsec, Delhi was investigated. It transpired that the shares were purchased on 8.7.2002 for Rs. 1,90,000/- and sold on 14.8.2003 for Rs. 19,54,948/-. The resultant gain was treated by the assessee as long term capital gains. The assessing officer examined him and was of the view that as the broker had not given details and furnished documents the transaction appeared to be fake, therefore, disallowed the plea of long term capital, gains and added the differential amount, of Rs. 17,54,237/- as 'income from other sources'. The matter was carried in appeal before CIT(Appeals), who vide order dated 27th February, 2008 accepted the plea of the assessee and deleted the addition. The Revenue's appeal before the Tribunal has failed. We have heard Sri Shambhu Chopra, learned Senior Standing Counsel, appearing for the Revenue and Sri Krishna Agrawal, learned counsel appearing for the respondent-assessee. "Sri Chopra submitted that the CIT (Appeals) as also the Tribunal had erred in law deleting the addition as much as the broker had not produced any documentary evidence to support the claim set up by the assessee regarding sale of the sha....
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.... of purchase and sale of shares is not made available is not correct. viii) The sale consideration of these shares was received through account payee Demand Drafts duly ascertained by the AO independently to have been issued from the bank account of the broker. ix) During the course of assessment proceedings the following evidences were brought on record:- a) Copy of share broker bill. b) Copy of the Contract note. c) Copy of Demat account statement with Stock Holding Corporation of India Ltd. Which dearly shows that the shares were transferred from the name of appellant after its sale. d) Copy of ledger account of the appellant in the books of share broker. e) Copy of Bank Statement of appellant with Bank of India, Agra. x) Further during the course of assessment proceedings it is seen that notices u/s. 133(6)/131 were issued to the share broker were complied with. This fact seen along with the evidences as referred in Para (ix) above duly prove the existence of the share broker along with the transaction with the assessee. The AO has wrongly compared that onus of the assessee is the same as required in respec....
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....enuineness of share transaction. Merely because the sale of shares fetched a handsome price, which price is supported by official quotation issued by Magadh Stock Exchange, therefore, there cannot be any reason to doubt the genuineness of the sale transaction of the shares. It is settled position of law by the decisions reported in 26 ITR 776 (SC), 37 ITR 288 (SC), 63 ITR 449 (SC) and 1 SOT 90 (Mum) (supra) that suspicion how so ever strong cannot take place of the character of evidence. In this case it is seen that appellant brought on record all plausible evidences as is expected in these transaction, however, the AO has not brought any material on record to disprove the evidences as adduced by the appellant. The Hon'ble Supreme Court in the case of Sreelekha Banerjee and Others vs. CIT 49 ITR 112 has held "Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot be merely rejecting unreasonably a good explanation, convert good proof into no proof. The AO has based his conclusion on unfounded presumption and ....
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....ces to explain the source of the amounts received by the assessee from the brokers. The AO was not justified in assessing the sale proceeds of shares as unexplained cash credit under section 68 of the Act. Hon'ble Allahabad High Court in the case of Ms. Amita Bansal vs. Commissioner Of Income (2018) 400 ITR 324 (All) on 30 March, 2017 INCOME TAX APPEAL Mo. - 326 of 2010, HELD: "1. Whether on the facts and circumstances of the case the ITAT was correct to hold that 11,000 shares of M/s. Welcome Coir Industries Ltd. Purchased by the appellant on 10.11.2003 from broker M/s. Elbee Portfolio Pvt., Ltd. vide contract Note dated 10.11.2003 and received in the Demat account and thereafter sold vide Contract Note dated 26.2.2005 of the broker M/s. D.N. Kansal Securities Pvt. Ltd. And sale proceeds of share credited in the bank account of the appellant, still it was rightly held that shares sold were not the same shares purchased in November, 2003? 2. Whether the ITAT rightly treated the sale price of 11,000 shares, as income from undisclosed sources and added to the income of the appellant u/s. 68 of the Act on the ground that the appellant could not filed any....
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....ced by the assessee including the entries in the Demat account passbook; evidence of the broker firms through whom the transactions were made; contract note dated 10.11.2003 etc. allowed the appeal. In his view the disallowance of the said claim was not justified. The CN (Appeals) had further found that merely because certain transactions performed by the brokers through whom the assessee had sold those shares were doubtful, it could not be said that the transactions performed by the assessee were, therefore, for that reason alone, doubtful or not genuine. In such cases individual transactions relating to the particular assessee (in whose case genuineness of the transaction is doubted) need be examined before adverse conclusion be drawn against such assessee. Upon appeal, by the revenue, the Tribunal has reversed the finding of the CIT (Appeals) and sustained the addition made by the Assessing Officer. The Tribunal's order is one of reversal. However, the Tribunal has without directly dealing with the reasoning given by the CIT (Appeals) passed its order on a solitary reasoning of the purchase of shares having been recorded late in the Demat account of the assessee. In....
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.... We are therefore of the view that the Tribunal's finding is not conclusive, and it has been arrived by following a faulty process. The Tribunal has not considered a/I relevant and other material evidence existing on record before disbelieving the claim of the assessee. The Tribunal has also not specifically dealt with the findings recorded by the CIT (Appeals)." As three Judge bench of the Supreme Court, in Udhavdas Kewalram Vs. CIT (Supra) held that the AO had to act judicially, i.e. to consider all the evidence in favour of and against the assessee. An order recorded on a review of only a part of the evidence and ignoring the remaining evidence cannot be sustained. The Supreme Court thus laid down the test of fair and full review of evidence by the AO. In this regard, in the instant case the AO has neither considered nor weighed, in entirety, the evidence presented by the investigation authority nor it has dealt with the reasoning and submissions of the appellant while passing the assessment order. It is clear that the order of the AO is nothing but an estimation made, based on presumptions. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P & H)....
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.... to the appellant becomes important. Therefore, same may kindly be identified and forwarded to this office so that judicious decision in this appeal can be taken. "You are directed to send the assessment record with all pages duly numbered and all the specific evidence available on record pertaining to appellant, properly flagged within 15 days of receipt of this letter." In reply to this specific opportunity given, the Assessing Officer simply sent the assessment folder to this office for perusal without specifying any adverse evidence present on records against the appellant whatsoever of any kind in support of the suspicion relied upon by him. It is therefore clear that there is no adverse material on record against the appellant, to show that the share prices of Nikki Global were rigged in the case of appellant or that the appellant had in fact participated in any such scheme of procuring bogus entry of share sales to show bogus capital gains. It is therefore clear that there is no adverse material on record against the appellant, to show that the share prices of Nikki Global were rigged in the case of appellant or that the appellant had in fact parti....
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....pellant. The AO has also not specifically dealt with the evidence placed on record by the appellant during assessment proceedings. AO made assessment ignoring the fact that there is no evidence of either the appellant or the share broker present on record that binds them for being involved in any illegal or manipulative transactions leading to an unreasonable high long-term capital gain. I do not find that the AO has brought out any part of the report from the investigation wing in which the assessee has been investigated and or is 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 by wing, including entry operators or stock brokers, have named the assessee as being in collusion with them. In absence of any finding specifically against the assessee in the investigation wing report, the appellant cannot be held to be guilty or linked to the wrong acts of any third persons investigated. In this case, in my view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation into the facts of misuse of the ....
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....f ITA No. 1069/DEL/2019. 4. The Revenue urges identical questions of law in all the afore-noted appeals with the only difference being the figures relating to the additions made under Section 68 read with Section 115BBE of the Act. Accordingly, the same are being decided by way of this common order. 5. It is not in dispute, as noted in the Impugned Order, that the factual background in all the three appeals is quite similar. However, for the sake of convenience, the facts in respect of ITA 125/2020 are being noted and discussed elaborately. Briefly stated, the Respondent-Assessee is an individual who has derived income from interest on loan, FDR, NSC and bank interest under the head of 'income from other sources' in respect of A.Y. 2015-16. She filed her return of income, declaring total income of Rs. 13,96,116/-. After claiming deduction of Rs. 1,60,000/- under Chapter VI-A, the total taxable income of Respondent was declared to be Rs. 12,36,120/-. The return was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny. During the scrutiny proceedings, the AO noticed that for the relevant year under consideration, the Re....
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....iry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014. The ex parte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50(a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find any place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Organic food Processing Ltd - a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As me....
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....fice Memorandum dated 16th September, 2019 issued by the CBDT, which clarifies that the monetary limits prescribed in the aforementioned circular shall not apply where an assessee is claiming bogus LTCG through penny stocks, and the appeals be heard on merits. 7. Mr. Zoheb Hossain, learned senior standing counsel for the revenue (Appellant herein), contends that the learned ITAT has completely erred in law in deleting the addition, and thus the Impugned Order suffers from perversity. He submits that there are certain germane factual errors, inasmuch as the learned ITAT has wrongly recorded that there was no independent enquiry conducted by the AO, when in fact the AO had issued notices to the companies in question under Section 133(6) of the Act. He points out that the observations recorded in para 25 of the Impugned Order are factually incorrect, and in conflict with para 4 of the order of the CIT(A) dated 24th December, 2018 which reads as follows: "4. Even the broker through whom the shares were dematerialized and sold i.e. SMC Global Securities Ltd. was also a part of the scam. This is a Delhi based broker whose regional office was also surveyed. The sub broke....
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....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 concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and ....
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....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. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee ther....