TaxTMI 
TaxTMI 
2022 (9) TMI 809
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....) has erred in sustaining the addition of Rs. 62,13,9457- on account of disallowance of the claim of exempted long term capital gain on sale of shares of M/s. Shree Shaleen Textiles Ltd. (SHRSHTA TEX) and treating it as unexplained credits u/s. 68 of the Act. 2. It is therefore prayed that the above addition made by assessing Officer and confirmed by learned Commissioner of Income-tax (Appeals) may please be deleted." 3. The relevant facts, in short, are that the assessee filed her return of income for the year under consideration on 22-04-2015 declaring a taxable income of Rs.10,32,510/- only. In the return of income, the assessee claimed exemption from long term capital gain (LTCG) of Rs.62,13,945/- u/s 10(38) of the Income Tax Act. The assessee has purchased the shares of Shree Shaleen Textile Ltd. (Shrshta Tex) on 16.09.2011 at Rs.10 per share for a total consideration of Rs.52,760/- only. Thereafter, the assessee was allotted 19000 bonus shares which were later converted into 1 lakh shares under subdivision of shares of face value of 10 per share. The shares were purchased off line but they were transferred in the name of assessee by the company on 31-03-2012. The ....
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....nts of brokers, operators, director of paper companies that has bought these shares, directors of Penny stock companies all confess to such a scheme with detailed modus operandi which tallies with actual transactions. The assessee is one such beneficiary who has taken entry of LTCG. vi) Exactly similar entries have been taken by other family members of the assessee in the form of Exempted Long Term Capital Gain and the total bogus LTCG so claimed by assessee, and his family members comes to Rs.1,55,93,391/- from actual investment of Rs.1,32,401/-. A quick analysis of the above figure shows abnormal return from a very small investment within a span of one to two years, which is quite impossible in normal share trading. 5. While passing the order, the Ld. Assessing Officer observed certain facts as detailed under:- "7. As per information available with the office, it is learnt that surveys and search actions were carried out at Kolkata, Mumbai and Delhi on entry operators who were involved in providing accommodation entry in form of bogus LTCG through sale of penny stock. It is seen that the entry operators in their sworn in statement has discussed the modus oper....
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....k Exchange and are being used for providing bogus accommodation entry of Long Term Capital Gain/Short Term Capital Loss. List of such company identified by the Department includes the following scrip in which you have traded and shown Long Term Capital Gain as per the details below:- Script Code Script Name Full name of penny stock Amount of total trade value SEBI Action 50551 3 SHRSHA TEX Shree Shaleen Textiles Ltd 502. 16CRORE Suspended In view of the above, the AO treated the long term capital gain declared by the assessee as unexplained cash credit under section 68 of the Act. 6. Aggrieved, the assessee preferred an appeal before Ld. CIT(A). Before Ld. CIT(A), it was submitted that the Assessing Officer borrowed his satisfaction from the Investigation Wing of the department and has reached the conclusion that trading of the script of M/s. Shaleen Textile Pvt. Ltd. was bogus. The assessee relied on ITAT decision in the case of Dwani Mahendra Shah, Smt. Sunita Jain, ACIT vs. Bhavik Bharatbhai Padia, Pratik Suryakant Shah, Meena Dev etc. The assessee also placed reliance on the decision of ITAT in the case of Smt. Durga Devi Gupta Vs. ITO and....
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.... for the said script. There was no extraordinary event which could justify the huge price rise and huge trading volume. The SEBI after thorough investigation has certified that such transactions are rigged and are carried out to convert black money into white. That being so, the credit in the bank account of the assessee cannot be treated as explained and, therefore, liable to be added u/s 68 of the Act. The onus was, therefore, on the assessee to prove that either there was no such scheme and even if there was one, the benefit to the assessee was as a result of genuine transaction. Thus, the assessee miserably failed to discharge this onus with any supporting documentary evidence and it is clearly proved that it was an entry of bogus long term capital gain by paying unaccounted Income. 3.3.14 The assessee has not at all been able to adduce cogent evidences in this regard. There is no economic or financial justification for the sale price of these shares. The so called purchaser of these shares has not been identified despite efforts of the AO. The broker company through which shares were sold did not respond to queries in this regard. Hence the fantastic sale price realiz....
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....g. The assessee invested in stocks which gave rise to huge capital gain but this does not mean that the transaction is bogus since all the documents and evidences have been produced. The shares were sold in piecemeal on different dates through recognized stock exchange at quoted price. (iv) The assessee submitted that decisions of Sumati Dayal vs. CIT 214 ITR 80TT (SC) is not applicable to the assessee as it has successfully demonstrated with the help of evidence on record to have made the transaction of purchase and sale of alleged shares no certain material was brought on record indicating name of any of the entry provider taking assessee's name or share broker name. (v) Various decisions quoted by ld. CIT(A) are not applicable in the appellant's case since the appellant has proved that the purchase/sale is genuine and the department did not provide any opportunity of cross examination but only proceeded on the statement of Akash Agrawal and other operators to prove the case of the department. (vi) The assessee has proved that the purchase and sale are genuine and, therefore, in view of the Hon'ble Gujarat High Court decision in the case of CIT vs. Mahe....
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....nsupported by material on record & is purely an assumption based on conjecture. The theory of human behavior and preponderance of probabilities, based on Sumati Dayal v. CIT, 214 ITR 801 (SC), cannot be cited as a basis to turn a blind eye to the evidence. The relevant extract of the judgment is reproduced for ready reference: 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 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 p....
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....from which the assessee had earned Long Term Capital Gain has been held by the Investigation Wing of the Revenue to be a paper entity and that this scrip was being used for creating artificial capital gain. The objection was not found to be acceptable. 15. The Mumbai ITAT in the case of Dipesh Ramesh Vardhan vs. DCIT (ITAT Mumbai) I.T.A. No.7648/Mum/2019 held that the AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making addition is a third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee's position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. 16. The Delhi ITAT in the case of Suresh Kumar Agarwal vs. ACIT, ITA No 8703/Del/2019 held that the assessee has produced contract notes, demat statements etc& discharged ....
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....ved by the assessee was returned back in cash. It is also not the case of the Revenue that the shares in question are still lying with the assessee, 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. 14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee. nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon'ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:- "6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the C....
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.... of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 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 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 We, thus, set aside the impugned order as passed In/ the Tribunal and allow this appeal." 16. On the strength of the aforementioned decision of the Hon'ble Supreme Court, the assessment order has to be quashed. 19. For the sake of the completeness of the adjudication, even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer in the name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There....