TaxTMI 
TaxTMI 
2022 (9) TMI 155
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....firming the addition made by AO u/s 69 of Rs. 82,248/- on account of commission which is based on assumption and presumption. 4. That the learned CIT (A) went wrong in not giving the opportunity for cross examination of the broker, promoters and other persons who has given the statement inspite of written request. 5. That the learned CIT (A) has not considered the additional written submissions submitted online wherein we have relied on the Delhi ITAT judgement in the case of Shri Suresh Kumar Agarwal v. ACIT, CC-25, New Delhi, ITA No. 8703/Del.2019, AY 2011-12 wherein the learned CIT (A) has deleted the addition on the same ground. 6. That the appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal before or at the time of hearing. 2. The brief facts of the case are that the assessee filed his return of income on 28.06.2010 for the assessment year 2010-11 declaring total income of Rs. 70,260/- claiming exempt Long Term Capital Gain of Rs. 13,53,298/- under section 10(38) of the Income Tax Act, 1961. Information was received from Directorate of Investigation that an organized racket of generating bogus entries of LTCG in pe....
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....e to furnish explanation on or before 07.12.2017 failing which it was proposed that the whole scheme would be treated as an attempt to introduce undisclosed income and LTCG amounting to Rs. 13,70,805/- was proposed to be added on account of undisclosed income. The assessee vide reply dated 07.12.2017 enclosed relevant documents and submitted as under : 1) Purchase was made through account payee cheque. 2) Shares were allotted after paying STT 3) It is a genuine transaction. 4) Copy of Bank statement, demat account, brokers notes etc. were filed. 5) 20,000 equity shares were purchased through Mawerick Brokers Pvt. Ltd. (registered on BSE) vide bill dated 09.01.2008 and 15.01.2008 for Rs. 6,33,124/- inclusive of STT, Stamp duty etc. 6) Shares were deposited in Demat account in Jaipur and were credited on 24.01.2008. 7) 20,000 shares were sold in FY 2009-10 for Rs. 20,03,929/- which was credited in bank account on 22.03.2010. The AO considered the above submissions of the assessee but did not accept the contentions of the assessee. The AO concluded that the alleged LTCG shown by the appellant on account of sale/purchase....
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....f stock exchange has taken appropriate action in case of the suspect scrips. Out of these scrips, an interim order has also been passed by SEBI in case of 11 scrips, giving a finding that price in the scrip was rigged. The SEBI also banned trading of such shares. On the basis of information collected during search/survey operations beneficiaries of such bogus LTCG were also identified. The AO found that assessee is also one of such beneficiary. The details of share transaction in case of assessee from bogus scrip, as noted by the AO during the year are as under :- S.No. Name of Scrip Trade Value 1. Nouvea Multi 20,13,350/- The AO examined these evidences i.e. transactions entered into by the assessee visà- vis the return of income of the assessee. The AO noted that the assessee has not disclosed the above transaction in the return of income filed. After appraisal of these materials on record, there is enough reason to believe that the assessee has clearly failed to disclose all material facts for determination of income. This information along with the material on record constitutes a tangible material to form the belief that the income assessable to tax....
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....and the shares were kept as an Investment in the books of accounts. The Appellant has purchased the shares through Maverik Share Broker Pvt. Ltd. These shares were deposited in Demat A/c with Alankit Assignment Ltd, Jaipur Appellant has already furnished following documents during the course of Scrutiny Proceedings vide letter dt.:- 07/12/2017 to justify the transaction of purchase of equity shares; -Copy of the Transaction Statement/Demat A/c (See P.B. Pg. No.86) -Copy of Contract note issued by the Broker. (See P.B. Pg. No.81-82) -Copy of the Bank Statement (See P.B. Pg. No.87-101) -Copy of the Ledger account (See P.B. Pg. No.83-85) It is relevant to mention the appellant had purchased 9000 equity shares of the Company on 09/01/2008 and 11000 shares on 15/01/2008 in DEMAT format, as it is evident from the Demat account.This is online transaction. The company is listed on Recognised Stock Exchange (BSE). This information is very vital and proves the fact that the Appellant had in fact purchased the equity shares of Nouveau Multi Ltd. Under these circumstances, there is absolutely no basis for the AO to presume that the transaction for p....
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.... has duly discharged its onus to prove the genuineness of the transaction of sale of shares. Ld. AO cannot make addition just because there is high difference in purchase price and sale price of the shares. Ld. AO has made unjustified allegation that by taking the support of unusually high sale price compared to purchase price which is on the basis of mere suspicion. Appellant hereby emphasizes that he has no control over the sentiments of secondary market. Appellant is independent from the price movement of the scrip on the recognized stock exchange. As a prudent share holder would stand static when the market is in upswing, appellant has sold the shares through recognized stock exchange on the basis of financially suitable market conditions. The Ld. AO has heavily relied upon the statement of seven brokers recorded u/s 131 during the survey proceedings u/s 133A of the Act. First and Foremost, it is respectfully sumitted that the Ld. AO has not provided the copy of the said statement during the Assessment proceedings on which he has heavily relied upon to draw a conclusion which is against the Principle of Natural Justice. The action of Ld. AO was in violation of....
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....demat accounts were debited. It is submitted for kind consideration that sale through a recognized stock exchange which were electronically operated cannot be manipulated. So also debit and credit entries in the Demat Account which were maintained by reputed and independent DPs. The process involved is automatic transmission of the information through electronic device regarding sale of shares. The sale proceeds were then received by account payee cheques/drafts from the brokers where the appellants maintained trading account. These were credited in the bank accounts and recorded in regular books of the appellant in regular course. The bank accounts of the Appellant evidence receipt of sale consideration by account payee cheque/draft. The resultant gains were reflected in the books of accounts and shown in the returns filed in the regular course. Hence there is no scope for disbelieving transactions as bogus. It is respectfully submitted that there is no material evidence on record against the Appellant except some vague, confusing enquiries sought by the Ld. AO to draw the conclusion which adversely affects the Appellant. The Ld. AO has not appreciated the fact t....
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.... examination and verification but then, for these facts alone, the transaction could not be rejected altogether, particularly in absence of any cogent evidence to the contrary.(Para7) In an overall view of the matter, the finding as recorded by the appellate authorities after a thorough consideration of the material on record that the transaction of purchase and sale of shares could not be treated as nongenuine, remains a justified finding on facts; and we are unable to find any substantial question of law worth consideration in this case.(para 8) In an overall analysis, the findings as concurrently recorded by the CIT(A) and the ITAT, that addition under Section 68 of the Act was not sustainable, remain essentially in the realm of appreciation of evidence. The Appellate Authorities have returned the finding of fact in favour of the assessee after due appreciation of evidence on record, on relevant considerations, and on sound reasonings. The finding neither appears suffering from any perversity nor is of such nature that cannot be reached at all. Hence, no substantial question of law is involved in this appeal.(Para 10) Where shares were sold by assessee....
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....in either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or....
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....at the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Shri P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K Agarwal in the order of Settlement Commission in the case of Shri Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions ....
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....both the conditions for claiming exemption u/s 10(38) of the Act. The first condition was that transaction of those shares was to be entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 came into force i.e. 01-10-2004 and the transaction was chargeable to Securities Transaction Tax under this Chapter. In the present case, shares were acquired by the assessee on 17-06-2005 through Stock Exchange and put into DEMAT account. When those shares were sold, the assessee incurred the expenses of Rs. 1891/- on account of Securities Transaction Tax and those share were held for more than one year. Therefore, the profit earned on the sale of the shares was Long Term Capital Gain which was exempt u/s 10(38) of the Act. We therefore, considering the totality of the facts of the case as discussed hereinabove are of the view that the ld. CIT(A) rightly deleted the addition made by the Assessing Officer. In that view of the matter, we do not see any merit in this appeal of the Department. 3.0 In the result, the appeal filed by the Revenue is dismissed." 5) Hon'ble Bombay High Court in CIT v. Shyam R. Pawar (2015) 54 taxmann.com 108 on a similar i....
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....e, it was made clear that when an assesse, out of a group of assesses which bought same shares is able tto establish the genuineness of transactions entered into by him, he cannot be punished for buying the same shares and thus, addition cannot be made. However, the department is aming to make the addition in the hands of all assesses who bought a particular share/ scrip even if the assesses who traded in such scrip did not belong to same group. This contention of the revenue is unparallel to the judgement prounounced. 8) Hon'able ITAT, Kolkata Bench in Dolarrai Hemani v. ITO (ITA 19/Kol/2014 dated 02.12.2016 on a similar issue has held: "We find that the similar issue had been adjudicated by the co-ordinate bench of this tribunal in the case of DCIT vs Sunita Khemka in ITA Nos. 714 to 718/Kol/2011 dated 28.10.2015 and in the case of ITO vs Rajkumar Agarwal in ITA No. 1330 (Kol) of 2007 dated 10.8.2007 wherein it was held that when purchase and sale of shares were supported by proper contract notes , deliveries of shares were received through demat accounts http://www.itatonline.org 11 ITA No.19/Kol/2014 Dolarrai Hemani, AY 2005-06 maintained with various agencies....
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.... Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account." 10) Hon'able Allahabad High Court in CIT v. Udit Narain Agrawal [2013] 31 taxmann.com 76(All.): In this case, it was contented by assessee's counsel that after the allotment of shares, the same were transferred to Demat A/c, remained in demat account during the period of holding and transferred to the demat account of the buyer, itself proves the genuineness of the purchase/sale transaction of shares having regard to the relevant provisions contained in the Depository Act. The transaction made through demat account is in itself an evidence to prove the genuineness of share transaction. Merely because the sale of shares fetched a handsome price, which price is supported by official quotation issued by Magadh Stock Ex....
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....that the transaction of the assessee is bogus being an accommodation entry. The AO in the show cause notice though referred the statements of Directors/entry operators, who have operated as entry providers/brokers, however, neither any documentary reference is made in the show cause notice or any such reference is made in the finding of the AO while holding the transaction as bogus by availing the accommodation entry of long term capital gain. The AO has either discussed the modus operandi of entry providers or the judgments on the issue but has not made any reference of any material or documentary evidence which reveals that the assessee has indulged in availing the accommodation entry of bogus long term capital gain. There is no dispute that once the assessee has claimed the long term capital gain from purchase and sale of shares which is exempt under section 10(38) of the Act, the primary onus is on the assessee to substantiate his claim by producing the supporting evidence. We find that the assessee is a regular investor in shares. We also find that in the case in hand the assessee purchased 20,000 equity shares of M/s. Nouvea Multi Media Ltd. through Mawerick Share Broker Pvt ....
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....ntrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record by the AO. In the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction. Even if the AO doubted the transaction, then to establish that the transaction is bogus, the AO is required to produce the contrary material evidence so that the evidence produced by the assessee can be controverted. In the absence of such contrary material or evidence brought on record by the AO and the evidence produced by the assessee is otherwise indep....
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..... Even the oral statement is general and does not pin point or mention appellant name anywhere. Neither does it mention anywhere that cash from appellant was received & it was same cash which was routed back to the appellant through bank account. Considering the above documentary evidences, it clearly out weight the oral evidences relied upon. 6.1. It is settled position of law that addition cannot be made simply on the basis of statement alone. The same has to be substantiated and corroborated either by enquiries or by linking it with tangible material/ evidence. It is a settled law that statement, that too of 3rd person, alone cannot be treated as incriminating material for the purposes of making addition for assessment completed u/s 143(3). It has been held in many judgments that mere statement u/s 132(4) or u/s 131 is not sufficient to make an addition. A statement made must be relatable to some incriminating material or the statement must be made relatable to material by subsequent inquiry/investigations. Hon'ble High Court of Rajasthan in the case of Mantri Share Brokers PL ( 96 taxmann.com 279) have held as under: Section 69B of the Income-tax Act, 1961 - ....
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.... only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded...." The Hon'ble High Court in the above case has also observed that statements recorded under Section 132 (4) of the Act do not by themselves constitute incriminating material. 6.2. Further, the Ld. A/R has also taken a legal plea that no cross examination of the person, whose statement was relied upon, was granted despite specific request made to the AO. The aspect of not granting cross examination has specifically been answered by the Hon'ble ITAT Jaipur in the case of Shri Pramod Jain & Others in ITA Nos. 368 to 372/JP/2017 dated 31.01.2018. The relevant extract on the issue at page 24 to 28 are as under: "As regard the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under:- "5. We have heard Mr.KavinGulati, learned senior counsel a....
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....l Appeal No. 2216 of 2000 , order dated 17.2.2005 was passed remitting the case back the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice." Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in para 46 as under:- "46. ln situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed o....
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....favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee." Therefore, in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of Report of the Investigation Wing of the Department in some other cases where some persons were found indulged in providing accommodation entry, and further it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. 6.3. The issue of penny stock and consequent additions made has elaborately dealt with by ITAT Jaipur Bench in the case of Pramod Jain & Others (supra) and relying on the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Pooja Agarwal, 160 DTR 0198 (Raj.) deleted the ad....