TaxTMI 
TaxTMI 
2023 (2) TMI 1280
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....election for scrutiny was "suspicious sale transaction in shares and exempt long term capital gains shown in return (Penny Stock tab in ITS).' The AO noted that the assessee claimed exemption u/s 10(38) of the Act for LTCG in respect of sale of shares to the extent of Rs. 20,64,793/-. And that the share sold were of M/s. Greencrest (scrip code is 531737). On being asked by AO, the assessee replied vide his letter dated 31.08.2017 that he was allotted 1,50,000 shares of M/s. Marigold Glass Industries Ltd., for which the assessee had made payment of Rs. 18,00,000/-. Subsequently the companies name got changed from M/s. Marigold Industries Ltd, to M/s. Greencrest Financial Services Ltd. Upon the name change, the shares were also split at Rs. 1/- per share and the assessee got 15,00,000/- shares of the same after the split. In the computation of income filed along with the return of income, the assessee has claimed exemption u/s 10(38) of the Act as under: - Name of company Sale price and date of sale Purchase price and date of purchase No. of shares sold Exempt 10(38) M/s. Greencrest (Previously known as M/s. Marigold Industries Ltd.,) 24,58,602/- on 11.12.2014 4,32,000/- on 1....
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....7 (answer to question no. 3 at page no. 9). The assessee also brought to the AO's noticed that he has been an investor in many companies in the past like M/s Power Grid, M/s Adani Port, M/s Coal India and M/s Reliance Power etc. To question no. 47 as to whether he has to say any thing more, the assessee has submitted that the increase in price cannot be sole criteria for treating a genuine share transactions as penny shares transaction. According to him, the shares purchased and sold were in the regular primary market and secondary live market, through recognized stock exchange only. Shares were received in physical form/certificate, dematerialized and delivered in dematerialized form, from his regular Demat account and applicable STT was also paid on these transactions. And the payments were made and received in regular banking channel through the mode of Cheque, RTGS or NEFT. Hence he asserted that this scrip cannot be termed as penny share transaction and reiterated that the transaction in question are genuine investment transactions. However, the AO did not agree and was of the opinion that since the Investigation Wing has found that this scrip a penny stock and the entry opera....
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....rest Financial Services Ltd. (earlier known as Marigold Glass Industries Ltd.) and to support the same had filed allotment advice from M/s. Marigold Glass Industries Ltd which is found placed at page no. 1 of the PB; and the bank account shows payment of Rs. 18,00,000/-towards purchase of shares of the above company on 06.09.2012 (refer page no. 2 & 3 of the PB). The Ld. AR also brought to my notice that the Demat statement (CDSL statement for the period 01.12.2013 to 31.12.2013) shows holding of 150,000 equity shares of M/s. Marigold Glass Industries Ltd in Demat Format (refer page no. 4 to 5 of the PB). And the Ld. AR also brought to my notice CDSL statement for the period 01.03.2015 to 31.03.2015 showing holding of 14,64,000/- equity shares of M/s. Greencrest Financial Services Ltd. in Demat Format after sale of 36000 equity shares on 11.12.2014 (refer page no. 6 to 7 of the PB). The Ld. AR also brought to my notice contract note from Broker M/s. Ashika Stock Broking Ltd. for sale of 36,000 equity shares of M/s. Greencrest Financial Services Ltd. out of 15,00,000/- equity shares (refer page no. 8 to 9 of the PB). The Ld. AR also brought to my notice the Bank statement showing re....
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....me the revenue was able to prove that the sale of the impugned shares was bogus/sham. Even the details received from CSE did not mention that on the specified dates, the transaction as asserted by assessee did not take place. The Tribunal observed, that department failed to show that the payee brokers did not have funds to make payments to the assessee or that their existence was suspect or that the transaction was not genuine. It was noted by the Tribunal that although investigation was conducted by the department on brokers, M/s Prakash Nahata & Co. and Bubna Stock B. S. Ltd., and even found that cash was deposited in the account of Prakash Nahata & Co. in the bank and gave full summary of the details, nowhere did the name of that assessee figured in that list. The Tribunal therefore, noted that the burden was on the department to nail the assessee through proper evidence, that there was some cash transaction with these suspected brokers, on whom there was an investigation being conducted by the department. Based on these observations the addition made on account of bogus long-term capital gain was deleted by the Tribunal. Subsequently, this decision of the Tribunal was challenge....
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....gain on sale of shares was deleted by holding it to be a genuine transaction in the case of Mukesh Marolia v. Addl. CIT-6 SOT 247 (Mum). Even in the said case, the AO had held that the long term capital gain shown by the assessee was unexplained since in the said case broker had confirmed in a statement before the AO that he never sold any shares to the assessee. However, taking note of the evidence as available on record, the Tribunal held that the AO had not disproved the genuineness of the transactions. The said decision of the Tribunal was later upheld by the Hon'ble Bombay High Court in the case of CIT v. Mukesh Marolia - ITA 456 of 2007 dated 07.09.2011. And the SLP against the said decision filed by the Department has also been dismissed by the Hon'ble Supreme Court in SLP (Civil) No. 20146/2012 dated 27.01.2014. 8. Reliance was also placed on the decision of this Mumbai Tribunal in the case of ITO v. Indravadan Jain (HUF) (ITA No, 4861/Mum/2014) dated 27.05.2016 wherein an identical issue was involved, and in the said case, the long term capital gains claimed by the assessee was denied by the AO and treated as unexplained cash credit u/s 68 of the Act on the basis of actio....
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.... in the findings of CIT(A). Moreover, issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (supra), wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted. Respectfully following the same vis-a-vis findings recorded by CIT(A) which are as per material on record, we do not find any reason to interfere in the order of CIT(A)." 9. In similar case, the issue was decided in favour of the assessee in the case of Commissioner of Income-tax, Jamshedpur vs. Arun Kumar Agarwal (HUF) 210 Taxman 205 (Jharkhand High Court). In this case, the AO on the basis of finding in the SEBI enquiry, consequent to which eleven stock brokers & their trading were suspended by the Kolkata Stock Exchange from buying & selling the securities ii) investigation by the CIT (Inv.) in the case where modus operandi adopted by the brokers of the assessee was also identical with one adopted by M/s Ahilya Commecial Pvt. Ltd., held that transaction of the purchase of the share and sale thereof is not genuine and is a sham transaction. Hon'ble Jharkhand High Court while dismissing the appeal of revenue h....