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2024 (2) TMI 524
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....nd in law, the Id Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirming the addition of Rs. 39,51,648/- under section 69A of the IT Act. 3. On the facts and in the circumstances of the case and in law, the Id Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirming the disallowance of exemption of Rs. 38,55,696/- being the long term capital gain arising on transfer of shares in Kailash Auto Finance Ltd; under section 10(38) of the I T Act. 4. On the facts and in the circumstances of the case and in law, the Id Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirming the levy of interest of Rs. 7,48,203/- and Rs. 69,180/- respectively under section 234B and 234C of the IT Act. 5. Your appellant craves the leave to add, amend, alter and / or delete any of the Grounds of Appeal either before or during the course of hearing of appeal." 3. The assessee had challenged the validity of reopening of assessment u/s 147 of the Act in the instant case. The interconnected issue involved therein is as to whether the ld. CIT(A) was justified in conf....
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....ese actions include passing interim direction, suspending the trade, reducing the price band etc. In a large number of penny stocks, the price band had been reduced to the lowest bank of 2%. Out of these scrips, and interim orders have also been passed by SEBI in the case of 11 scrips, giving a finding that price in the scrips was rigged. Details of such orders are available on the website of SEBI. Out of the 11 scrips in which SEBI has passed orders, 9 are appearing in investigation report of Kolkata and the orders of SEBI in the case of the 9 scrips are available in the ITS screen also. 3. Specific information has been passed in the case of assessee. As per the information sent on the ITD System, It is seen that the assessee has entered into transaction of selling scrip of KAILASH AUTO (SCRIP CODE 511357). The total of trade value comes to Rs 39,64,750/- The Investigation Wing, Kolkata has categorized the assessee as "Client Type A-LTCG Mainly Profit" Beneficiary-Client which has only sold penny stock on the exchange without any purchases on the exchange. It is worth mentioning that the concerned persons like brokers, operators, exit providers, etc. have already....
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....ry evidences in support of the claim of exemption u/s 10(38) of the Act in respect of sale of 100000 shares of KAFL. None of the documentary evidences furnished by the assessee were found to be false or any adverse inference drawn by the ld. AO on the same. It is pertinent to note from the facts of the assessee that assessee had been a regular investor in stock markets and furnished the entire list of investments made by her in earlier and subsequent years including the year under consideration. It was submitted that KAFL was one of the scrip invested by the assessee, among many other scrips. On going through the statements of 3 persons viz. Mr Anil Khemka , Mr Pankaj Agarwal and Mr Anuj Agarwal, alleged to be entry operators by the investigation wing of income tax department, which have been heavily relied upon by the ld. AO to form a belief that income of the assessee had escaped assessment, I find that neither the name of the assessee nor the name of the stock broker through whom the assessee sold the shares in the open market, was mentioned by the alleged entry operators in their respective statements. Hence it could be safely concluded that the assessee and/or his stock broker....
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....Later the ld. AO proceeded to frame the re-assessment wherein the net sale consideration of Rs 39,51,648/- was added as unexplained money u/s 69A of the Act in the hands of the assessee as according to the ld. AO , the said consideration was obtained by the assessee from the secondary market out of artificial price rigging of shares of KAFL in connivance with the entry operators. This action of the ld. AO was upheld by the ld. CIT(A). 8. I find that as stated supra, in none of the statements of 3 persons relied upon by the ld. AO to draw an adverse inference on the assessee, the name of the assessee or his stock broker was mentioned. Hence there cannot be any connivance that could be attributed either to the assessee or to his stock broker. Moreover, I find that Securities and Exchange Board of India (SEBI) vide its interim order dated 29.3.2016 had restrained certain entities named in its order which included Sanskriti Vincom Pvt Ltd also (i.e. the entity from whom the assessee purchased the shares in Panchshul Marketing Ltd) to access the securities market. Subsequent to the interim order, SEBI carried out investigation to look into the role of the debarred entities specified ....
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....erators. This fact is also proved by the SEBI Investigation and its final order dated 21.9.2017 listing out the name of the entities and persons who were involved in price manipulation of shares of KAFL. Admittedly, the assessee or his broker was not mentioned in the said list. Further Sanskruti Vincom Pvt Ltd (entity from whom assessee bought the shares in off market) and Panchshul Marketing Ltd (entity whose shares were bought by the assessee) were also discharged by the SEBI in its final order dated 21.9.2017 pursuant to its independent investigation. 12. It is not in dispute that the assessee had made purchase of shares in off- market. Now the next issue that arises for our consideration is as to whether an off market purchase of shares could be taken as a ground to declare the entire transaction as sham. In my considered opinion, the transactions could not be treated as sham merely because they are done in off-market, if the assessee had discharged his onus of proving the fact that shares purchased by her were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares are....
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....n certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make their profits. In this process, they also burn their fingers by incurring huge losses without knowing the fact that the particular scrip invested is operated by certain interested parties with an ulterior motive and once their motives are achieved, the price falls like pack of cards and eventually make the gullible investors incur huge losses. In this background, the only logical recourse would be to place reliance on the orders passed by SEBI pointing out the malpractices by certain parties and taking action against them. Since Sanskruti Vincom Pvt Ltd and Panchshul Marketing Ltd, among other persons, have been finally discharged in the list of 244 entities in final order of SEBI dated 21.09.2017 after its detailed investigations, the transaction carried out by the assessee cannot be termed as bogus. 14. I hold that the entire addition has been made based on mere surmise, suspicion and conjecture and by making baseless allegations against the assessee herein. Now another issue that arises is as to whether the ld. AO merely on the basis of Kolkata investig....
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....lusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we f....
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....Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs. 25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law." 16. I am conscious of the decision of Hon'ble Jurisdictional High Court in the case of Suman Poddar vs ITO reported in 112 taxmann.com 329 dated 17.09.2019 where the decision was rendered in favour of the revenue. The Special Leave Petition filed by the assessee before the Hon'ble Supreme Court in this case was dismissed by the Hon'ble Apex Court vide its order dated 22/11/2019. But I find that there is yet another decision of Hon'ble Jurisdictional High Court in the case of P....
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....come-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG....
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....n Poddar case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal (supra) too turns on its own specific facts. The above- stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial ....
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.... a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of „preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in 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 presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee." 19. I find that the Hon'ble Bombay High Court in the recent case of PCIT vs Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 had held as under:- "2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramakrishna Fincap Ltd ("RFL") is done throug....
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....o iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. 22. I find that the Hon'ble Calcutta High Court in the case of CIT vs Bhagwati Prasad Agarwal reported in 2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009, had observed that the Assessee claimed exemption of income from Long Term Capital Gains. However, the ld. AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded there. He therefore held that the transactions were bogus. The Hon'ble High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by Hon'ble High Court. In the instant case of the assessee before me, no such enquiries were even sought to be made by the ld. AO with the stock exchange t....
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....ther enquiry was not conducted in that case. 11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has risen from Rs. 5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share, then how it can be inferred that such person entered into sham transaction few years ago and prepared for getting the benefit after few years when the share will start rising steeply. In present case even there was no reason for such suspicion when the shares were purchased years before the unusual fluctuation in the share price. Here in this case, we have given example of one of the Tax Appeal wherein the shares were purchased in the year 2004 and were sold in the year 2006, which is said to be one of the case wherein the gap in the purchase and sale of the shares was narrowest. In other cases as we have noticed from....