TaxTMI 
TaxTMI 
2021 (1) TMI 1280
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....10(38) of the Act and which the authorities below have denied by holding that the script in which the capital gain had accrued was a penny stock and bogus. The Learned A.R. submitted that the authorities below without confronting the assessee with the adverse material has made this addition which is not in accordance with law. Without prejudice he submitted that the only reason for disallowing the claim was that the assessee had managed to arrange capital gain through the script of SRK Industries, whereas in a number of cases, different Benches of the Tribunal in different cases have considered this aspect and have held the script of SRK Industries dealt by the assessee to be a genuine script and have allowed relief to the assessee and in this respect reliance was placed on the following case laws: (i) I.T.A.T. Kolkata 'C' Bench order dated 28/11/2018 in the case of Aditya Vikram Sureka HUF vs. Income Tax Officer, Ward-34(2) in I.T.A. No.1650/Kol/2018. (ii) I.T.A.T. Kolkata 'SMC' Bench order dated 25/07/2018 in the case of Shreyans Chopra vs. ACIT in I.T.A. No.661/Kol/2018. (iii) I.T.A.T. Kolkata 'B' Bench order dated 12/02/2019 in the case of Shri Pawan ....
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....pect may be allowed. 4. Inviting our attention to the other addition of Rs.1,00,000/-, Learned counsel for the assessee submitted that the assessee had sold some property and had paid commission to two parties amounting to Rs.1,00,000/- and the Assessing Officer disallowed the same holding that tax was not deducted at source u/s 194H of the Act. The Assessing Officer further held that the assessee had not provided the addresses of the persons to whom such commission was paid. Learned counsel for the assessee submitted that this issue may be remanded back to the Assessing Officer so that necessary evidence can be provided and the Assessing Officer can readjudicate the same. 5. Learned D.R., on the other hand, submitted that the authorities below have confirmed the addition as the Investigation Wing of the Department had carried out detailed investigation and wherein the script was found to be a bogus script and the authorities below have made and sustained the addition correctly. He heavily placed reliance on the orders of the authorities below. The Learned D. R. then filed written submissions on 08.12.2020 which has been made part of this order and are reproduced below: ....
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.... during the year under consideration and claimed Long Term Capital Gain as exempt u/s 10(38) of the Act. The Assessing Officer, relying on the report of the Investigation Wing of the Department and noting down the modus operandi wherein Long Term Capital Gain or Capital Loss is managed by various persons with the help of various intermediateries, noted that the assessee had managed to get the Long Term Capital Gain and actual income had not been earned and therefore, he issued a detailed show cause notice to the assessee. The assessee filed a detailed reply which is placed at pages 103 and 104 of the paper book wherein it was submitted that the shares were sold through SEBI registered broker and shares were listed at Bombay Stock Exchange and security transaction tax was paid and the sales proceeds were received through banking channels. The Assessing Officer however did not accept the contentions of the assessee and made the addition of the capital gain u/s 69B of the Act. 7. Aggrieved with the addition the assessee filed appeal before learned CIT(A) who dismissed the appeal of the assessee. While dismissing the appeal the learned CIT(A) also relied on the judgment of Hon'b....
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....ubdivision of shares- in the ratio of 2:1, these 43,290 equity shares were converted into 86,580 equity shares in M/s SRK Industries Ltd. The appellant earns long term capital gains amounting to Rs. 78,57,121/- on sale of these 86,580 equity shares of M/s SRK Industries during January & February , 2014 and same has been held in de-mat account and it is from de-mat account that the same had been sold during year under consideration. The sale consideration stood fully supported by contract notes issued by brokers, exit entries in denial, account & STT was paid. 1.3 Considering facts and circumstances of the case, I hold that A.O. was correct in disallowing LTCG of Rs. 78,57,121/- claimed as exempt u/s 10(38). Appellant purchased bogus scrips Of M/s SRK Industries and earned huge profit after holding same for more than 15 months or less. Investigation wing of Income Tax Department has thoroughly investigated each and every aspect of this alleged scrips ( M/s SRK Industries) and declared the ,scrip as bogus . Calcutta Stock Exchange Ltd., a broker traded in alleged penny stock namely M/s SRK Industries. This alleged company has no credential to justify the sharp rise in market....
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....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 broker and stock exchange to launder the unaccounted monies of the assessee and bring it back in the form of sale proceeds of shares and claim exemption u/s 10(38) of the Act for the long term capital gains derived thereon. None of the parties on whom survey actions were conducted were related to assessee or the brokers in any manner whatsoever. We find that the various purchase and sale details together with the supporting evidences were not controverted by the revenue before us. The revenue had not brought on record any adverse order passed by SEBI linking the assessee or her broker with the alleged price rigging and manipulation. Hence there is absolutely no iota of evidence linking the assessee or the registered brokers to even remotely allege that they were involved in artificial rigging of price of scripts which were dealt by the assessee here....
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....it 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'ble Supreme Court in the case of CIT vs Dhanrajgiri Raja Narasingirji reported in 91 ITR 544 (SC). 7.2. We find that the ld AR pleaded that in an online platform, there would be no nexus between the purchasers and the seller and the delivery of shares and payments would be made through their respective stock brokers. Hence the ld AO ought to have summoned the assessee's brokers to examine the authenticity of the sale of shares of SRK Industries Ltd and the amount received on sale of shares. We find that the ld AR also placed evidences on record to prove that the said company SRK Industries Ltd is still listed in the stock exchange and shares of this company are being traded and SEBI had not passed any adverse order against the said company either suspending the trading of the scrip or banning the scrip. Moreover, the ld AR also placed on re....
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....ed 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 assessee has received the sale proceeds of shares from her broker M/s Sharekhan Limited. The assessee had shown the credit in the name of M/s Sharekhan Limited in her books. Hence the assessee had duly discharged her onus by furnishing the entire sale details made through the registered stock broker M/s Sharekhan Limited. We find that the ld AO had not even bothered to make any enquiry with M/s Sharekhan Limited to understand these facts. Hence no fault could be attributed on the assessee in this regard. We find that none of the purchase and sale details with supporting evidences were found to be deficient in any manner whatsoever either by the ld AO or by the ld CITA. 7.4. We find that the assessee was duly examined on oath u/s 131 of the Act during the course of assessment proceedings on 29.11.2016 which fact is also mentioned in Pa....
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....oncluded 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 transactions are duly reflected in the demat statements issued by the depository participant. 7.6. We find that the ld DR made general submissions with regard to the investigations carried out by Kolkata Income Tax Department after identifying 84 scrips to be penny stocks and the modus operandi adopted by those scrips with the connivance of various entry operators, brokers and stock exchange. We find that the ld DR was not specifically able to controvert the documentary evidences filed by the assessee for purchase and sale of shares and various other documents referred to in the Paper Book. The ld DR also filed written submissions wherein he had reiterated the findings of the ld AO. 7.7. We find that the co-ordinate bench of Kolkata Tribunal in ITA No.661/Kol/ 2018 in Shreyans Chopra vs ACIT dated 25.7.2018 on s....
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.... 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 of the company Sale price Purchase price Exempt u/s 10(38) SRK Industries Ltd. 5,57,658 7,500 5,50,158 Shares were purchased off market @7,500/- but their value increased later in pursuant to order dated 21/12/2013 of Bombay High Court and order dated 21/02/2013 of Madras High Court vide letter no. SRK/SA/elec/ 000771/2013 dated 20.05.2013. In course of the assessment, the assessee was asked to furnish the details of such share transactions. 3. The Assessing Officer in his detailed order discussed the modus operandi a....
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....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 of this scam. The chain of events and the live link of the assesee‟s action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation‟s office by way of ....
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....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 as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or 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 , including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their w....
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....osecution 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 Income-tax 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 Incometax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer 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 Income-tax Officer 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 t....
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....las 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, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to crossexamine, would amount to a denial of the right to be heard i.e. audi alteram partem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be ....
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....g to us, not allowing the Assessee to crossexamine 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 Assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out any material which would not be in possession of the Appellan....
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....mation 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 facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed." b)....
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....ssee 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 bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of....
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....thora 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 opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegatio....
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.... 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 present appeal. Hence, the present appeal is dismissed." i) The Hon‟ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.....
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....order dt.15/11/2017 The Hon‟ble Jurisdictional High Court had in the following cases, upheld the claim of the assessee:- (i) CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 (ii) CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC) dt. 08/05/2017 (iii) 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 High Court (Nagpur Bench) in the case of Sanj....
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....hares 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 sale o....
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....port and modus operandi adopted generally in these cases and on general observations has concluded that the assessee has claimed bogus long term capital gain. He made an addition of the entire sale proceeds of the shares as income and rejected the claim of exemption made u/s 10(38) of the Act. The evidence produced by the assessee in support of the genuineness of the transaction was rejected. 3. The assessee carried the matter in appeal and the ld. CIT(A)-10, Kolkata, had upheld the addition. The ld. CIT(A) has in his order relied upon "circumstantial evidence" and "human probabilities" to uphold the findings of the AO. He also relied on the so called "rules of suspicious transaction". No direct material was found to controvert the evidence filed by the assessee, in support of the genuineness of the transactions. In other words, the overwhelming evidence filed by the assessee remains unchallenged and uncontroverted. The entire conclusions drawn by the revenue authorities, are based on a common report of the Director of Investigation, Kolkata, which was general in nature and not specific to any assessee. The assessee was not confronted with any statement or material alleged....
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....of this case. 7. In view of the above discussion the addition in question is deleted. The consequential addition u/s 69C is also deleted. The appeal of the assessee is allowed." 8. As regards the reliance placed by Learned CIT(A) on the case of Sanjay Bimalchand Jain decided by Hon'ble Bombay High Court, we find that the above said case law has been distinguished by Hon'ble I.T.A.T. Kolkata Bench in ITA No. 2243/Kol/2017 where the Hon'ble Tribunal vide para 31 held as under: "31. We note that the Id. D.R. had heavily relied upon the decision of the Hon'ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the Id. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business pro....