TaxTMI 
TaxTMI 
2022 (8) TMI 1333
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....tances of the case and in Law Learned CIT(A) erred in confirming the addition after ignoring to the various documents & evidence related to exempted long term capital gain treated as other source of Income. 3. On the fact and circumstances of the case the Learned CIT (A) erred in framing the order after observing as the statement of Appellant recorded during the Assessment Proceedings. And he denied of dealed of Shares of M/s Turbo Tech Engineers Ltd. Thus whole Appeal Order has been framed on warm facts. Hence bad in Law. 4. On the facts & in the circumstances of the case the Learned CIT(A) erred in not accepting the fact that the Assessment for the Assessment Year 2014-15 has been finalized after keeping in view of general information of Investigation Wing instead of specific of the assessee. 5. On the facts & in the circumstances of the case Learned CIT(A) erred in not appreciating the facts that the Assessee earned long term Capital Gain on Transfer in Single Scrip of M/s Turbo Tech Engineers Ltd. 6. That on the fact and in the circumstances of the case, the learned CIT (A) has erred in confirming the action of AO regarding addition of the No....
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....e Grounds, the assessee has challenged the twin-additions made by Ld. AO, viz. (i) addition of Rs. 64,58,168/- in respect of bogus capital gain, and (ii) addition of Rs. 1,29,162/- on account of estimated brokerage cost incurred by assessee out of unexplained sources. 6. Before proceeding further, we may note down the undisputed facts of the impugned transactions of capital gain, as culled out from the assessment-order, the order of Ld. CIT(A) and the material held in the Paper- Books submitted by parties so that the issues can be better understood in subsequent paragraphs: (i) Purchase - The assessee purchased 35,000 shares of Turbotech Engineering Ltd. for a sum of Rs. 1,77,192/- on 04.04.2012 through M/s Pragati Shares and Stock Services, a SEBI-registered member of The Inter-Connected Exchange, Mumbai. The Contract-Note of purchase is placed in the Paper-Book, which demonstrates that the assessee has paid brokerage, service-tax and STT on purchase. The purchase is made through stock-exchange and the Order No., Trade No., Settlement No. and Trade-timings are duly mentioned in the Contract-Note. The purchase consideration was paid in cash which is a fact noted by Ld. ....
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....company is having neither fundamentals nor potential. (iv) Ld. AO analysed the stock-market data of the share of Turbotech Engineering Ltd. and observed that the market price is unrealistic and not related to the financial results of the company. Ld. AO observed that the price of share was very low till January, 2011 which then continuously increased. Thereafter, the price again fell down and came to initial stage. Ld. AO, thus, observed that the market price of the share was artificially and intentionally rigged by about 3644% when there was no related-growth in the company with an objective to provide accommodation entry. (v) Ld. AO issued a summon u/s 131, followed by reminders, to the assessee to afford an opportunity to the assessee as also to ascertain the truth of the transactions undertaken by assessee. But the assessee did not appear. Ld. AO, therefore, concluded that the assessee did not have knowledge of the financials and credentials of Turbotech Engineering Ltd., whose prices have registered a whopping increase of 3644% in just one year. (vi) Ld. AO also gathered data of the persons who purchased shares from the assessee through the stock-exc....
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....4 ITR 801 (SC) (c) Sanjay Bimal Chand Jain L/H Shantidevi Bimal Chand Jain Vs. PCIT, ITA No. 18/2017 (Bombay High Court) (d) Chandan Gupta Vs. CIT (2015) 54 taxmann.com 10 (P&H) (e) Balbir Chand Maini Vs. CIT (2011) taxmann.com 276 (P&H) (f) Usha Chandresh Shah Vs. ITO (2014-TIOL-1459-ITAT-MUM) (g) Ratnakar M Pujari Vs. ITO (2016-TIOL-1746-ITAT-Mum) 11. Before us, the Ld. AR made a very lengthy submission. Ld. AR drew our attention to the various documents placed in the Paper-Book to explain that the transactions undertaken by assessee are very much genuine. The Ld. AR raised several contentions, which we precisely summarize below: (i) The purchase and sale transactions are adequately supported by the documents in the form of Contract-Notes, Demat A/c and Bank Statement. The lower authorities have not found even iota of deficiency in any of these documents. (ii) The purchase and sale transactions were done in a recognized stockexchange through the members of stock-exchanges who are registered by SEBI. Nothing adverse is found by lower authorities with regard to those members. (iii) The Contract-Notes include....
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.... (a) ITAT Indore in Govind Hari Narayan Agarwal HUF, ITA No. 60/Ind/2019, order dated 28.06.2021 (b) ITAT Kolkata in Rachna Agarwal Vs. ITO, Ward-28(4), Kolkata, order dated 08.04.2022 (c) Hon'ble Delhi High Court in PCIT Vs. Smt. Krishna Devi - ITA No. 125, 130 and 131 of 2020, decision dated 15.01.2021 12. Per contra, Ld. DR placed heavy reliance on the observations and reasoning given by lower authorities and argued that the transactions done by assessee are only paper-transactions and the capital gain declared by the assessee is not a real profit but a bogus income arranged by assessee. According to Ld. DR, the assessee has arranged bogus capital gain to claim the benefit of section 10(38). During his arguments, the Ld. DR emphasized following vital aspects: (i) During assessment-proceeding, the Ld. AO summoned the assessee by issuing summon u/s 131. But the assessee did not appear before Ld. AO. The attitude of assessee is thus indicative that the assessee does not want the department to cull out truth. Non-compliance of statutory summon issued u/s 131, must lead to the conclusion against the assessee. (ii) The assessee has purchased....
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....nd also considered various judicial decisions cited before us. At the outset, we observe that there are different decisions by Hon'ble Courts on both sides, some in favour of assessee and some in favour of revenue. While the Ld. AR places reliance on the decisions in assessee's favour, the revenue relies upon the decisions in its favour. On a careful analysis we observe that in some decisions, the additions were made in the proceeding of section 153A/153C but the same were deleted there being no incriminating evidence. In some cases, the additions were deleted on the ground that the shares transacted by the assessee were not appearing in the Investigation-Report prepared by Investigation Wing, Kolkata of income-tax department. In some cases, the additions have been deleted because the assessee has not claimed any benefit of exemption u/s 10(38) or set-off of losses but the assessee has offered the profit from alleged transactions as normal income and paid legitimate tax. Yet in some cases, the additions have been deleted or confirmed on the basis of off-market transactions or transactions done in cash. In some cases, the additions have been deleted or confirmed accepting / not acce....
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.... concluded that transactions were sham. It is a matter of common knowledge that prices of shares in the share market depends upon innumerable factors and perception of the investor and not alone on the financial performance of the company. Further, we also find from record that Ld. AO also didn't confront copies of statements recorded by Investigation Wing, Kolkata of Sh, Nikhil Jain, Sh. Sanjay Vora, Sh. Rakesh Somani, Sh. Anil Kumar Khemka and Sh. Bidyoot Sarkar to the appellant during assessment proceedings and merely extracted copies of their statement in the assessment order only. The Ld. AO has not confronted any material to the assessee nor provided any adequate opportunity to the assessee to defend her case. Since the statements were not confronted to the assessee, she was deprived of her right to cross examine the witnesses. Also whatever they have stated in their statement is no gospel truth and cannot be applied blindly to all the persons who have brought the scrips in the entire country. Thus, under these circumstances, at least some inquiry should have done from these persons, whether they have provided any entry to the assessee, if the request for cross examinatio....
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....e Ld. AO has not confronted any material to the assessee nor provided adequate opportunity to the assessee to defend her case, and (ii) The companies were not marked as shell companies by SEBI nor the trading of these scrips were suspended. Regarding the first reasoning of conforntation / crossexamination, we observe that the recent decision of Hon'ble Kolkata High Court in Swati Bajaj (which we shall discuss little later) is against assessee. Furthermore, in the present-case, it is the claim of revenue that the Ld. AO provided an opportunity to the assessee by issuing a summon u/s 131 but the assessee did not avail. Regarding the second reasoning of suspension of operations by SEBI, the Investigation-Report prepared by Investigation-Wing, Kolkata of Income-tax Department (which we shall discuss little later), clearly mentions that the SEBI has suspended operations of Turbotech Engineering Ltd. Thus, both of the points considered in this decision for giving relief to the assessee, are not existing in the present appeal before us. Hence this decision is not applicable. (b) ITAT Kolkata in Smt. Rachna Agarwal Vs. ITO, Ward-28(4), order dated 08.04.2022: Ld. AR has r....
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....rent scrip and not the scrip transacted by the assessee. This point makes the decision non-applicable because in the present appeal the assessee has transacted in the scrip of Turbotech Engineering Ltd. which is clearly figured in the Investigation-Report of Investigation- Wing (we shall discuss the Report little later). Regarding other legal aspects considered in favour of assessee, we observe that Hon'ble ITAT Kolkata has rendered this decision on 08.04.2022 but subsequently the Hon'ble High Court of Kolkata has held in favour of revenue in a recent decision dated 14.06.2022 in the case of Swati Bajaj (we shall discuss this decision little later). Therefore, we have to follow the decision of Hon'ble High Court of Kolkata which is a higher forum than the Kolkata Bench of ITAT. Hence the assessee does not get benefit of this decision too. (c) PCIT Vs. Smt. Krishna Devi - ITA No. 125, 130 and 131 of 2020, decision dated 15.01.2021 (Delhi High Court): This decision has already been taken note of in the recent decision of Hon'ble Kolkata High Court in Para No. 21 in Swati Bajaj (we shall discuss a little later). The Hon'ble Kolkata High Court has finally ruled in fav....
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....dopted by the department cannot be faulted. 70. It was argued by Mr. Bagaria that in the decision in Balram Garg, the decision in K.R. Ajmera has been overruled. To examine the correctness of the said submission, we have carefully gone through the findings rendered by the Hon'ble Supreme Court in paragraph 47 of the judgment in Balram Garg which reads as follows: "Lastly, we have given our anxious consideration to the judgments relied upon by the learned counsel of the Respondent viz. SEBI vs. Kishore R. Ajmera [(2016) 6 SCC 368] and Dushyant N. Dalal vs. SEBI [(2017) 9 SCC 660]. Suffice it to hold that these cases are distinguishable on the facts of the present case, as the former is not a case of insider trading but that of Fradulent/Manipualtive Trade Practices; and the latter case relates to Interest Penalty rather than the subject matter at hand. Reliance placed on the case of Kishore R. Ajmera (supra) to show that presumption can be drawn on the basis of immediate and relevant facts is contrary to law already settled by this Court in the case of Chintalapati Srinivasa Raju (supra) where it is held that "a reasonable expectation to be in the know of thing....
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....at the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in Section 68 of the Act. Thus, the assessees cannot be permitted to contend that the assessments w....
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....erment/avoidance but the revenue should apply the "look at" test to ascertain its true legal nature and that genuine strategic planning had not been abandoned. Further the revenue has to establish on the basis of facts and circumstances surrounding the transactions that the impugned transaction is a sham or tax avoidance. In this regard Mr. Bagaria ITAT NO. 06 OF 2022 AND ETC. BATCH also referred to the decision in the case of Hill Country Properties Limited Versus Goman Agro Farms Private Limited 90 and also the decision in IRC Versus Duke of Westminster 91 . 74. In our considered view we need not travel thus far and wide to examine as to how and what is said and what is not said in McDowell Mr. Soumen Bhattacharya referred to the decision for the simple reason, to point out that tax planning may be legitimate provided it is within the frame work of law as colourable devices cannot be part of tax planning which cannot be encouraged. Therefore what we are required to see is whether the claim made by the assesees before us are legitimate and whether there was any colourable devices adopted in the process and these colourable devices may or may not be directly but indirectly....
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....ed that the 84 scrips dealt in the judgement / Investigation-Report do not include "Turbotech Engineering Ltd." transacted by the assessee and therefore the decision is not applicable. Contrary to this, Ld. DR has filed a letter dated 19.07.2022 accompanied by the Investigation-Report which is dated 27.04.015 and titled as "Investigation Report in the case of Project Bogus LTCG / STCL Through BSE Listed Penny Stocks" released by Directorate of Incometax (Investigation), Kolkata. Ld. DR has pointed out that the name of "Turbotech Engineering Ltd." is appearing in this Investigation-Report and the share is identified as "Penny stock". We gainfully reproduce the relevant paragraphs of the Report: Page No. 2 of the Forwarding-Letter embodied in the Report: "We identified the following BSE listed penny stocks which have been used for generating bogus LTCG: SL No Script Code Script Name Full Name of Penny Stock Amount of Total Value 62 504358 Turbo Tech Turbotech Engineering Ltd. 8319513048 Page No. 12 / 14 of the Report "4. Project Basis Enquiry of the scam. Various enquiries have been conducted by the Dire....
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....rt includes the scrip of "Turbotech Engineering Ltd." transacted by the assessee. Therefore, the applicability of the decision of Hon'ble Kolkata High Court could not be distinguished on this basis. 17. Reverting back, we shall now concentrate upon the crucial facts of the present appeal. On a careful consideration of the material available before us, we observe some of the glaring fallacies in the transactions declared by the assessee: (i) The assessee has dealt in the scrip of Turbotech Engineering Ltd. As discussed above, the revenue has analysed the scrip of Turbotech Engineering Ltd. in its Investigation-Report. Further, SEBI has also "suspended" operations in this scrip, which is clearly mentioned in the last Column of the Table on Page No. 33 of the Investigation-Report reproduced above. This is the first and most important factor to demonstrate that the scrip falls in what is called as "penny stock". (ii) The assessee has purchased shares for Rs. 1,77,192/- in cash on 04.04.2012 and not through banking channel. This raises a very strong doubt in so far as the assessee has made purchases from a Bombay-based broker. The prevalent trend in the stock-market....
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....r benefit, but declared the income as normal income or business income and paid legitimate tax at normal rate, perhaps there would not have been suspicion or question-mark on the income declared by the assessee but this is not so in the present case. 18. The various factors, noted in the preceding paragraph, lead us to conclude that the transactions claimed to have been done by the assessee are surrounded by a thick cloud of glaring fallacies which demonstrate that the impugned transactions are not genuine. 19. We also observe that the Hon'ble Chennai Bench of ITAT has also decided a case in Sudha Eashwar Vs. ITO, ITA No. 2342/Chny/2019, order dated 02.01.2020 on similar facts. The crucial facts of the case are such that the scrip involved was Turbotech Engineering Ltd.; the assessee purchased in cash on 22.11.2011; got transferred in her own demat A/c after about 1 and half year; subsequently sold and declared a hefty capital gain. On these facts which are analogous to the facts in present appeal, the Hon'ble Co-ordinate Bench upheld the action of revenue in holding the capital gain as bogus. We respectfully agree with the decision of Hon'ble Coordinate Bench which is very m....
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