TaxTMI 
TaxTMI 
2022 (5) TMI 1000
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....om sale of shares and commodities and income from other sources. The AO further noted that during the relevant assessment year the assessee had traded the scrip by the name of GCM Securities Ltd. which according to him was a 'penny stock', which has been used for generating bogus LTCG. According to AO, the unaccounted cash of beneficiaries (like assessee) is utilized to purchase shares at a low price and thereafter, in collusion the price of the scrips are artificially inflated and sold it is shown as LTCG and according to the AO, the scrip GCM Securities Ltd. is also a penny stock and, therefore, the AO was pleased to add u/s. 68 of the Act Rs.77,78,476/- as unexplained cash credit. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed it. Aggrieved, the assessee is in appeal before us. 3. We have heard rival sub missions and gone through the facts and circumstances of the case. We note that the assessee has purchased 12,000 number of shares of GCM Securities Ltd. The assessee has purchased shares of Rs.2,40,000/- (12,000x 20) vide Cheque No. 035983 dt. 08.02.2013by Initial Public Offer by the said company made in conformity with the provisions of the ....
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....2015 -do- 11200 61.03 6,83,510,04 282535 1415218 26/02/2015 -do- 43200 49.86 21,53,916.80 293661 1415223 TOTAL 120000 80,18,476.63 5. The copy of contract notes along with bank statement where sale proceed of shares has been deposited in found placed in the paper book Pages 37 to 67. We also note that the assessee has sold the share after one year of time from the time of its purchase. Clause 38 [w.e.f. 01.10.2004] has been inserted in section 10 of the Act, which envisages that income arising out of transfer of long Term Capital Asset being an equity share in a company on which STT is paid is exempt from tax. Since the equity shares of the company [GCM Securities Ltd.] has been held by the assessee for more than a year and later sold on recognized stock exchange on which STT has been paid, the income becomes exempt u/s.10(38) of the Act. 6. We note that before the AO the copies of contract notes, demat statement, broker's ledger, bank statements etc. evidencing the sale of shares was duly submitted by the assessee. Thereafter the assessee was in receipt of a show cause notice dated 14/11/....
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....on i.e. when the facts used are ascertained and allegations are justified. (ii) The Show-Cause Notice should not be an exercise in deliberate ambiguity. It should be specific and un-ambiguous. (iii) It should be clear on facts and legal provisions. Violation of the provisions of law should be clearly brought out in the Show Cause Notice. (iv) The charges should be specific. They should not be vague or contradictory. (v) Copies of the relied up on documents should be listed in seriatim as per the references made in the Show-Cause Notice and given as Annexures to the Notice. 8. From plain reading of the assessment order and the show cause notice we find that none of the above was done. There is nothing contained in the show cause notice save and except some vague details of finding of investigation department, which in no way can be understood to be linked to the case of the assessee. Therefore, we find that the AO did not bring on record any tangible material on the basis of which he could hold that the appellant's transaction in M/s GCM Securities Ltd was bogus or sham. In the present case, no material has been brought on record to suggest tha....
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....le of shares of M/s GCM Securities Limited. The assessee had furnished the following documents: (i) Copy of IPO Application Form (ii) Copy of Bank Statement showing payment for IPO (iii) Copy of DEMAT statement showing allotment of shares; (iv) Copy of DEMAT statement showing sub division of shares; (v) Copy of contract notes issued by Stock Broker showing sale of shares (vi) Copy of Bank Statement showing receipt of sale proceeds; (vii) Copy of DEMAT statement showing transfer of shares on sale; 10. We note that the aforesaid documents filed by the assessee before the lower authorities in order to substantiate sale of listed shares has not been found to be false, fabricated and fictitious. The appellant had furnished the copies of contract notes, Demat statement, Bank Statement, broker's ledger. The transactions in listed shares took place through a registered share broker, namely M/s. Ashika Stock Broking Pvt Ltd. The purchase of shares was acquired through public offer by way of direct subscription in Initial Public offering. The sale of shares took place on screen-based trading platform of Bombay Stock Exchange. ....
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....end at the rate of 4% to its shareholders. From the foregoing facts and figures it cannot be said that M/s GCM Securities Limited was a company not having requisite financials as compared with the facts in the case of M/s GCM SECURITIES LIMITED. We therefore find sufficient merit in the Ld. AR's argument that merely because the share transactions of M/s GCM SECURITIES LIMITED were doubted by the Revenue authorities for lack of adequate financial results could not ipso facto be applied in the case of M/s GCM Securities Limited. We find that even though in the impugned order the AO referred to the financials of M/s GCM Securities Limited the figures discussed pertained to FYs 2013-14, 2012-13 &2011-12 which had no bearing with the assessee's transaction in shares during FY 2014-15 which were based on the price movements prevailing on the Bombay Stock Exchange during the relevant period. As is well known the price movements on the stock exchange are based on the financials of the company for the relevant period and are not influenced by the past financial results of the company. In view of these foregoing facts therefore we hold that no adverse inference could be drawn against the app....
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.... of the alleged parties. The assessee has discharged his onus by establishing the identity of the payer, source of the credit and genuineness of the transactions.It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before her and she is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submissions of the assessee is that the assessee is just an investor and as she received some suggestion for investment and she chose to investment based on these market tips/suggestions and had taken a calculated risk and had gained in the process and that she is not party to any alleged scam or illegal trades etc. has to be controverted by the revenue with evidence when a person claims that she has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are many beneficiaries of LTCG. Each case has to be assessed bas....
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....of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisation. Courts of law are bound to go by evidence. 16. But in the present case, we noted that the assessing officer has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. The assessing officer has not brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a pan 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 findings 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 ....
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.... As regards the disclosed volume of business in the year under consideration in the head office and in branches the ITO 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 ITO 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 ITO 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 conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explai....
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....etails from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with ALankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat A/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellant's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The A.O. has discussed modus operandi in some sham transactions which were detected in the search case of B.c. Purohit Group. The A.O. has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or wastaxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that categor....
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.... income in the shape of long term capital gain. On the other hand, the assessee has brought back all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly, we delete the addition made by the AO on this account. " (c) The Delhi High Court of Delhi in the decision of PCIT Vs Smt. Krishna Devi (ITA No. 125/2020 Dated 15-01-2021) held that:- "On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of....
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....pute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the Page 9 of 10 ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and....
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....and on facts in deleting the addition of Rs. 9,70,468/- made on account of LTCG claimed as exempt u/s. 10(38) of the Act without appreciating the fact that the transaction was prearranged as well as sham and was carried out through penny scripts companies / paper companies?" 2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain C/TAXAP/204/2020 ORDER through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:- "9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA NO.62/AHD/2018 in the matter of Mohan PolyfabPvt. Ltd.....
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.... to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well a....
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.... dismissed. (d) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO's conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed. (e) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (f) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 2....
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....silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand, the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transactions through the broker were duly r....
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....ve, that is in favour of the assessee and against the Revenue. Similarly, we answer question No. 2 relating to share loss of Rs. 49,210 in the affirmative, that is, in favour of the assessee and against the Revenue." (j) The Calcutta High Court in the case of CIT vs. Currency Investment Ltd. (2000) 241 ITR 494 (Cal.) it was held as under: "The learned Tribunal has concluded that in view of the facts of this case, the assessee has made out a case of a genuine loss in share transactions. Whether the shares were sold or not and for how much the shares were purchased and for how much the shares were sold, is basically a question of fact. The identity of the parties through whom the shares were purchased and to whom the shares were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold ....
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....he claim of the assessee should not be denied." (l) The Calcutta High Court in the case of Commissioner of Income Tax Versus Emerald Commercial Ltd. and Another 250 ITR 539 the Court held: "The admitted facts in this case are that the details of purchase and sale of shares are furnished. The payment and receipt arc by account payee cheque. The identity of seller and purchaser is not in dispute. The disallowance is basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following our view in the earlier case referred to non-production of the share broker by the assessee does not disentitle the assessee for claim of loss in a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue." (m) The Calcutta High Court in the case of CIT vs. Kundan Investment Ltd. ....
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....o a finding on the basis of the materials that the transaction was genuine, sitting in reference, unless it is found perverse, this Court cannot intervene. In the said decision, it was further found that the findings of the ITO and the CIT(A) were based on presumption and not warranted by facts of the case as in the present case. Mr. Khaitan then relied on the decision in CIT v. Dhawan Investment & Trading Co. Ltd. . In the said case the shares were transacted through noted share brokers at the rates quoted in the stock exchange. The claim of the assessee was accepted. Such, an acceptance was found favour by this Court in the said decision. Mr. Khaitan had then relied on the decision in CIT v. Currency Investment Co. Ltd. In this case, it was held that merely because the assessee could not produce the broker through whom the shares were sold, the same did not affect the genuineness of the transaction when the assessee disclosed the identity of persons from whom the shares were purchased and to whom sold. Even when two views are possible, if the view taken by the learned Tribunal is possible, it cannot be said to be perverse. Having regard to the proposition of law....
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....he documents placed before us were sham, bogus or there was any factual infirmity therein. The Ld. D.R. also could not controvert the Ld. A.R's submissions that the disallowance was made solely on the basis of the report of the Investigation Wing in the shares of M/s GCM. The ld. D.R. could not bring to our attention any material or evidence from which one could infer that the transactions in shares of M/s GCM Securities Limited were either manipulated or sham or that any enquiry was conducted either by the Investigation Wing or by the AO in respect of assessee's transactions in shares of M/s GCM Securities Limited. 22. We may gainfully refer to the decision of the Hon'ble Supreme Court in the case of CIT Vs Odeon Builders Pvt Ltd 418 ITR 315 wherein the Hon'ble Court upheld the deletion of the disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO. In this case it was held: "We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would ....