TaxTMI 
TaxTMI 
2021 (4) TMI 1376
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....ing disposed off by way of this common order for the sake of convenience and brevity. 3. Assessee(s) has raised following grounds of appeal:- ITA No.616/Ind/2019 Ayush Jain Assessment Year 2015-16 1.The Learned CIT(A) erred in confirming the addition of Rs. 1,40,95,302/- made by the AO by disallowing the claim of exemption u/s 10(38) in respect of the long term capital gains of the appellant. That on the facts and in the circumstances of the case and in law, the claim of the appellant being proper and legal is prayed to be now allowed. 2.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the addition of Rs. 4,22,859/- made by the AO u/s 68 on account of alleged commission on surmises and conjectures. The said addition being wrong and uncalled for is prayed to be deleted. 3.The order passed by the AO without following the principle of natural justice is bad in law and is prayed to be quashed. 4.That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so ar....
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.... capital gains of the appellant. That on the facts and in the circumstances of the case and in law, the claim of the appellant being proper and legal is prayed to be now allowed. 2.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the net sale proceeds as Rs.1,43,22,060 as against actual sale proceeds of Rs.1,48,71,538/-. The balance amount of Rs.50,522/- represented the expenses which have been incurred by the appellant on sale of shares and therefore the same should have been allowed. The said addition being wrong and uncalled for is prayed to be deleted. addition of Rs. 4,22,859/- made by the AO u/s 68 on account of alleged commission on surmises and conjectures. The said addition being wrong and uncalled for is prayed to be deleted. 3.The order passed by the AO without following the principle of natural justice is bad in law and is prayed to be quashed. 4.That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. 4. From perusal of the Ground in all the 4 appeals we f....
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....Rs.1,46,95,302/-. The assessee filed complete details of the purchase and sale of shares effected through a recognized stock exchange and shares transferred through Dmat account thereby fulfilling the condition of Section 10(38) of the Act. However, the Ld. A.O was not convinced and observed that the figures available from the Annual Report shows that the market value of the equity share of the company on the stock exchange is unrealistic and not at par with the financials of the company. The price are manipulated and they are not in consonance with the growth in the company and the stock price increased for not understandable reason. Ld. A.O accordingly came to a conclusion that the company namely "M/s Sunrise Asian Limited" is a penny stock company and the said transaction of earning abnormal amount of Long Term Capital Gain is through a colorful device and is not genuine and fabricated. Ld. A.O gave benefit of purchase against the sale consideration and made addition for unexplained cash credit u/s 68 of the Act at Rs.1,40,95,302/-. Ld. A.O further made addition at Rs.4,22,859/- on account of estimated brokerage expenses @3% assuming that the assessee might have paid it for arra....
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....rn was processed u/s 143(1) on the same income. The return was selected for scrutiny. Notices u/s 142(1) were issued from time to time which were duly complied with. 1. 4. Assessment u/s 143(3) was completed on 23.12.16 by making the following additions :- Income as per return filed u/s 139 Rs. 9,98,610 Add: Capital Gain exempt u/s 10(38) treated as unexplained cash credit u/s 68 Rs. 1,40,95,302 Add: Alleged charges on transaction Rs.4,22,859 Rs.1,55,16,771 5. The appellant contested the addition made before the H'ble CIT (A), wherein the additions were sustained and consequently the present appeal was filed before Your Honor's. The transaction 6. During the month of June 2011, the appellant was approached by the directors of M/s. Santoshima Lease Finance and Investment India Limited (hereinafter called as Company), an unlisted limited company and their authorized persons with a proposal to invest money in their company by way of acquiring shares of the company on a private placement basis. After the preliminary discussion held, a written and formal proposal dated 05.07.2011 was received from the c....
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....ed by the H'ble Bombay High Court in the month of March 2013 (copy appearing at page no.20 to page no.47 of the paper book) 13. Pursuant to the amalgamation, in lieu of the shares held by the appellant in M/s. Santoshima Tradelinks Limited, new 30,000 equity shares of M/s. Sunrise Asian Limited were allotted to the appellant on 26.06.13 (copy of demat account reflecting the shares transaction is appearing at page no.55 to page no.56 of the paper book). 14. Subsequently, the appellant liquidated his investment made almost two years back by selling the 30,000 shares of M/s. Sunrise Asian Limited for a net consideration of Rs.1,46,95,302/- and after claiming the deduction of cost of acquisition of Rs.6,00,000/-, reflected long term capital gain of Rs.1,40,95,302/- which was claimed as exempt u/s 10(38) in the return filed by the appellant. The sequence of the events is tabulated as under for brevity. Period of Event Event June 2011 Meeting with director Mr. Nilesh P Chauhan regarding investment in Santoshima Lease Finance & Investment (India) Limited. 05 July 2011 Issue of Proposal for private placement of shares of the company at a premium....
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.... general remarks and allegations, drawing adverse inferences from the general modus operandi, merely on surmises and conjectures, the amount of capital gain earned by the appellant was treated as unexplained cash credits and the amount was taxed in the hands of the appellant. 16. Further, the learned AO also assumed that certain charges would have been incurred for arranging the alleged non genuine capital gain and therefore an amount equal to 3% of the capital gain earned of Rs.1,40,95,032/- amounting to Rs.4,22,859/- was added without any basis and without any cogent material on record, to the income of the appellant as income from undisclosed sources. 17. The Learned CIT(A) confirmed both the additions mainly on the same basis on which the additions were made by the AO and has not controverted the various facts and submissions made by the appellant during the appeal proceedings. The first appeal order is also based on surmises and conjectures and nothing concrete has been brought on record before the confirming the additions made by the AO. 18. Both the above additions made by the Learned AO and confirmed by the Learned CIT(A) have been challenged by t....
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....s alleged by the AO. Such an allegation is absolutely without any basis and without bringing any cogent material on record. 20.1 Further with respect to the observations of the AO regarding high growth in the share price of the company, which is one of the major reason of doubting the transactions it would be sufficient to say that the price at which the script is traded in the exchange is affected by the profit but the same is not the only deciding factor. The various factors which determine the price of the shares can be summarized as under: a) At the most fundamental level, supply and demand in the market determines stock price. b) Earnings of the company and its prospectus c) Investors' sentiments, attitudes and expectations towards the sector as well as the company. d) When a major brokerage gets behind a stock or upgrades it e) Good companies with battered stocks that get bought out can provide huge boosts to a stock's price. If the deal goes through, stock holders are often compensated at a premium 20.2 The major deciding factor for increase in share price is market sentiment. The fact that the market sentime....
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.... made by the Ld. AO is not only grossly wrong but also casts negative shadow on the actual and genuine transaction. As has been stated in the facts of the case (supra), the appellant has acquired the shares of M/s. Santoshima Tradelinks Limited after discussion with the management and considering the future prospects of the business of the said company. At that point of time the issue of merger of the company with M/s Sunrise Asian Ltd. was not under consideration and therefore he was unaware of the existence of M/s. Sunrise Asian Limited let alone its price. Therefore, this observation of the Learned AO is misconceived. 22.2 It would also be worthwhile to point out that the equity shares of M/s. Sunrise Asian Limited were issued to the appellant on 28.06.2013 post approval of scheme of amalgamation and completion of the formalities by the respective companies and therefore, there was no point in tracking the price of the shares. Having received the details of credit of shares at the fag end of June, the appellant started tracking the price of the shares from August 2013 onwards. 22.3 Further, from the perusal of the transactions of the sale of shares it would be ....
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....nnouncements made by the company which would have affected the status of investment. A tabular chart of the events in the total transaction has already been given above, from the perusal of which it would be seen that there was continuous and proactive monitoring of the transactions which cannot by any stretch of imagination can be considered as meagre. 23.4 The fact that the assessment was made with a pre-conceived notion of treating the transaction as non genuine by relying on the statements obtained from some persons is also evident from the fact that despite of the request made by the appellant for certified copies of the statements and documents relied upon while framing the assessment order, no documents have been provided to the appellant. Non providing of the details, establish that there were no documents / evidences which could establish that the transaction undertaken by the appellant were non genuine or he was instrumental in alleged price manipulation in shares of the M/s. Sunrise Asian Limited. 23.5 In spite of request for providing the statement, neither the statements were provided nor any opportunity to cross examine the concerned persons whose st....
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....ing the course of the statement has stated that he is unaware of the person who have acquired the shares sold by him. On these facts and circumstances the AO was not at all justified in drawing adverse inference on the basis of this statement of the appellant. 25.1 It is submitted that from the examination of the contract notes, it would be seen that there was considerable time gap between the time at which the sell order was placed and the time at which the same was executed. If by any stretch of imagination, the transaction would have been a managed affairs, as alleged, there would have been no time gap in the order time and execution time as it would have been impossible on the part of the appellant to be in hand in glow with multiple persons and that too at different time simultaneously. There are no documents or evidence which could establish that there was any such connivance on the part of the appellant. 26. Thus, it is submitted that various baseless and too general statements / observations have been made in the assessment order and the strength for making the addition is based on such generalizations without any direct or cogent evidence which could esta....
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....oncrete evidence and no single iota of evidence has been discussed to prove that the assessee was involved in creating artificial price rise in the shares of the concerned company. The final fait of the order of the SEBI discussed above are not known to either of the sides. The above order do not help the revenue so as to prove live link between cash deposited by the assessee and received back in form of long term capital gain. Further, the appellant did not dealt with the broker Sri B.D. Daga in whose case enquiry was conducted about shares of "Konark Commerce & Industries Ltd.". Further, in case, of any violation of the provision of SEBI (intermediaries) Regulation (2008) or SEBI Act, 1922 have been committed, the same is fault of the SEBI broker. The manipulation if any conducted by the broker, the appellant is not liable to be penalized. 17. Further in view of the overwhelming evidences filed by the assessee in support of its transaction of purchase and sale of shares in the said company duly confirmed by third party evidence like confirmation of brokers and bank details we are of the view that the short point for our determination as enumerated in para 4 (supra) needs....
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....instant case before Your Honour are more or less identical to the facts of Pr. CIT vs Krishna Devi (supra) before the Honourable Delhi High Court as the observations which have been given by the H'ble High Court and lack of details/ information/ corroborative evidence are integral in the order appealed against. 32. Further, various coordinate benches of H'ble Income Tax Appellate Tribunal in their orders in respect of the long term capital gains earned on shares of M/s. Sunrise Asian Limited treated as unexplained cash credit have deleted the additions made in the hands of the assessees'. The appellant places heavy reliance on following judicial pronouncements in this regards: Date Bench Appeal No. Name of Party 18.11.20 Jaipur "B" Bench 124/JP/2020 Ashok Agrawal 11.08.20 Mumbai "D" Bench 7648/Mum/2019 Dipesh Ramesh Vardhan Vs DCIT Central 08.08.19 Mumbai "B" Bench 4811/MUM/2018 Narayan RamchandraRathi vs ITO 16.07.19 Mumbai SMC Bench 4514/Mum/2018 &....
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....into some sort of arrangement with for arranging the above transactions. However, no evidence or information has been supplied to the appellant and the basis on which such inference has been drawn is also not clear. No details have been given as to what is the basis on which such figure has been arrived at. In absence of any evidence, addition made in the hands of the appellant purely on the basis of unconfirmed or unestablished details is improper. 33.5 Further, during the assessment proceedings, no query was raised to the appellant on this issue. In absence of any query or show cause, the addition cannot be made in the hands of the appellant. 33.6 Without prejudice to the above, attention is drawn to the copies of contract notes for purchase and sale of shares of M/s. Sunrise Asian Limited. From the examination of the documents it would be seen that the appellant has sold the shares during the year under construction through M/s. Arihant Capital Markets Limited The broker has charged various expenses like Brokerage, Service Tax, Securities Transaction Tax and other charges levied by the exchange in the bill itself. The said broker is a listed company and has its....
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....• Narayan Rathi - Mumbai Bench Para no. 11 at page no. 108 of PB • Anrajhiralal Shah - Mumbai Bench Para no. 08 at page no. 114 of PB The submission and arguments of the appellant on this aspect are covered in para no.19.1 to 19.3 of the synopsis. 2. High growth in the share price of the company without any major financial changes which was on account of alleged manipulation in the share price. It has been held that the AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. • Ashok Agrawal - Jaipur Bench Para No. 21 at page no. 54 of PB • Dipesh Ramesh - Mumbai Bench Para no. 7 at page no. 92 of PB • Anrajhiralal Shah - Mumbai Bench Para no. 08 at page no. 114 of PB The submission and arguments of the appellant on this aspect are covered in para no.20.1 to 20.2 of the synopsis. 3. No prior transactions by the appellant in shares and securities. The appellant is a regular investor in shares and the same are reflected in the balance sheets of various years. Therefore, it canno....
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.... AO such as abnormal increase in share price within a short span which was not supported by the financials, allegation of conversion of unaccounted income by claiming fictitious LTCG in a preplanned manner to evade taxes, search and seizure operation conducted by the Investigation Wing in Kolkata, Delhi, Bombay and Ahmedabad, non response to the notices issued to the investee company etc. Therefore, the present before Your Honours is also squarely covered by the decision of the Honourable High Court of Delhi. Apart from above the appellant's case is further strengthened on the basis of following salient features: - A. The appellant has furnished plethora of documents in connection with the transactions of purchase and sale of shares and has also submitted various communications with the investee company which were not submitted in all the case laws relied upon which further fortifies the transactions of the assessee. B. Further all these documents remained uncontroverted, so as to say have been accepted by the authorities below. C. Sunrise Asian Ltd. cannot be stated to be a penny stock for the reason that the turnover of the company was in excess of Rs. ....
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....llenged the action of Ld. A.O making addition for estimated brokerage expenses for arranging the alleged bogus Long Term Capital Gain. 16. We observe that the assessee has claimed to have sold 30000 equity shares of M/s Sunrise Asian Limited for a consideration of Rs.1,46,95,302/-. These shares were claimed to be purchased on 10.10.2011 at cost of Rs.6,00,000/-. Ld. Counsel for the assessee has filed following sequences of events which have occurred since the purchase of these equity shares during the Financial Year 2011- 12 till they were finally sold during Financial Year 2013-14. Period of Event Event June 2011 Meeting with director Mr. Nilesh P Chauhan regarding investment in Santoshima Lease Finance & Investment (India) Ltd 05 July 2011 Issue of proposal for private placement of shares of the company at a premium of Rs.10/- per shares alongwith copy of list of directors and copy of financial report for Financial Year 2007-08, Financial Year 2008-09 & Financial Year 2009-10 20 July 2021 Letter issued to the company for further clarifications and requiring copies of Memorandum of Association, Articles of Association and Balance Sheet for the Financi....
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....lding in the shares of M/s Santoshima Tradelinks Limited. Undisputedly the assessee has held the share for more than 12 months and the income in the form of Long Term Capital Gain is claimed to have arise from the transfer of Long Term Capital assets being equity share in the company carried out through recognized stock exchange and the transaction being chargeable to security transaction tax. On the strength of these facts the assessee has claimed exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited. On the other hand revenue authorities are alleging that there is an upward increase in the price of equity share of M/s Sunrise Asian Limited and looking to the financial growth of the assessee the increase in the share price is abnormal and unprecedented and beyond human probability and thus it was concluded that the transaction is sham transaction and the M/s Sunrise Asian Limited is a penny stock company. 18. Further in view of the claim of the Ld. Counsel for the assessee that the issue raised before us is squarely covered by the decision of Co-ordinate Benches, we have gone through the facts involved in the case of ....
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....ares signifying high trades with high liquidity. The assessee has sold these shares through its stock broker namely M/s Unique Stockbro Private Limited in online platform of the recognised stock exchange during the month of March, 2014. The selling price was in the range of Rs.489/- to Rs.491/- per share. The transactions took place through online mechanism after complying with all the formalities and procedure including payment of STT. The delivery of the shares was through clearing mechanism of the stock exchange and sale consideration was received through banking channels. The transactions are duly evidenced by contract notes, demat statements, bank statements and other documentary evidences. The key person of assessee group, in his statement, maintained the position that trading transactions were genuine transactions carried out through stock exchange following all process and legal procedures. The assessee also filed trading volume data and price range of the scrip for a period of more than 2 years i.e. from Jan, 2013 to July, 2015. The shares reflected healthy trading volume and the price range reflected therein was in the range of Rs.360/- to Rs.600/- per share. The price ra....
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....etween the assessee and various entities of Shri Vipul Bhat. We find that the whole basis of making additions is 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. 8. The allegations of Ld.AO that the assessee was part of the group which indulged in rigging or manipulation of prices of shares in connivance with Shri Vipul Bhat is not backed by any independent material. Firstly, there is nothing on record which establishes the fact that the assessee was acquainted with Shri Vipul Bhat or any of his entities and secondly, the onus casted upon assessee to prove the genuineness of the transactions was already discharged by the assessee. Shri Vipul Bhat, in his statement, stated that one Shri Sandeep Maroo acted as intermediary who introduced Vardhan family to him. However, no further investigations have been carried out to establish this vital link between the assessee and Shri Vipul Bhat. We do not find any independent investigations ....
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....that personal knowledge and excitement on events should not lead the Assessing Officer to a state of affairs where salient evidences are overlooked. When every transaction has been accounted, documented and supported, it would be very difficult to brush aside the contentions of the assessee that he had purchased shares and had sold shares and ultimately purchased a flat utilizing the sale proceeds of those shares and therefore, the co-ordinate bench chose to delete the impugned additions. We find that this decision was firstly been approved by Hon'ble Bombay High Court vide ITA No. 456 of 2007 on 07/09/2011 and thereafter, special leave petition against the said decision has been dismissed by Hon'ble Supreme Court vide SLP No. 20146 of 2012 dated 27/01/2014 which is reported as 88 CCH 0027 SCC. The SMC Bench of Tribunal in Anraj Hiralal Shah (HUF) V/s ITO (ITA No. 4514/Mum/2018 dated 16/07/2019) held that in the absence of any evidence to implicate the assessee or to prove that the transactions were bogus, the Long-Term Capital Gains declared by the assessee could not be doubted with. This case was dealing with gains earned by the assessee on sale of same scrip i.e. M/s Su....
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.... the assessee or its transaction with any of the alleged parties. In the instant case, as we have discussed earlier, there is no finding which proves assessee's connection, involvement or collusion with so called accommodation entry providers. Further in the aforesaid case, the issue as to whether 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 is genuine or not has been discussed at length. And referring to legal proposition laid down by the Hon'ble Supreme Court that the burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidence held that the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same c....
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....f transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the gains so arising on sale of shares therefore has been rightly claimed as exempt u/s 10(38) of the Act. Accordingly, in the facts and circumstances of the case, we set-aside the order of the Id. CIT(Appeals) and the claim of the assessee u/s 10(38) is allowed. The matter is thus decided in favour of the assessee and against the Revenue. In the result, the ground of appeal so taken by the assessee is allowed. 26. In the result, the appeal of the assessee is allowed." 19. We find that both the above decisions are squarely applicable on the facts and issues raised before us. Ld. Departmental Representative has relied on two judgments, the one of Hon High Court of Gauhati in the case of CIT V/s Smt. Sanghamitra Bharali (2014) to taxmann.com 47 (Gauhati) (supra) is not applicable on the instant case since in this case the company address where shares were sold by the assessee has not been found by the Inspector of the Income Tax Department proving its non existence. This is not the fact in the instant case as neither any such enquiry has been conducted and secondly n....
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....gation Wing of the Income 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 takin....
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....venue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (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 v. CIT (supra) too turns on its own specific facts. The abovestated 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 le....
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....shares of M/s Sunrise Asian Limited at Rs.37,40,741/-, Rs. 1,02,86,220/- and Rs.1,48,71,538/- made by the assessee namely Shri Pritesh Jain (HUF) for Assessment Year 2015-16 and 2014-15 and Shri Nilesh Jain (HUF) for Assessment Year 2014-15 respectively. Accordingly Ground No.1 raised in ITA No.617/Ind/2019, 293/Ind/2020 and 294/Ind/2020 are allowed. 24. As regards Ground No.2 raised in ITA No.617/Ind/2019 & 293/Ind/2020 regarding estimated brokerage expenses at Rs.1,17,022/- and Rs.3,21,790/- made in the case of Shri Pritesh Jain (HUF), we apply the same analogy and decision as taken in the case of Shri Ayush Jain in ITA No.616/Ind/2019 and delete the addition for estimated brokerage expenses and allow Ground No.2 raised in Appeal No. ITA No.617/Ind/2019 & 293/Ind/2020. 25. As regards Ground No.2 raised by the assessee Shri Nilesh Jain (HUF) in ITA No.294/Ind/2020 for disallowance of expenses of Rs.50,522/- claimed by the assessee, we find that the Ld. A.O has made the addition for bogus Long Term Capital Gain at Rs.1,43,22,060/- which in view of Ld. A.O is claimed as Long Term Capital Gain. There is a factual error in his observation. The assessee received sale consideratio....