AI Drafter 
TaxTMI 
TaxTMI 
2022 (8) TMI 1520
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....s Transcend Com Pvt Ltd at a face value of Rs. 10 per share. Subsequently, the company M/s Transcend Com Pvt Ltd got merged with M/s SRK Industries Ltd w.e.f. 21st December 2012 and the assessee was allotted 28860 shares of M/s SRK Industries Ltd at a face value of Rs. 10 each as a result of amalgamation. Thereafter, the shares of M/s SRK Industries Ltd were split into 2 share of Rs. 5 each and accordingly, 28860 share held by the assessee were converted into 57720 shares. 3.1 The assessee in the year consideration dated 21st November 2013 sold entire shares of M/s SRK Industries Ltd for Rs. 1,05,90,173/- and thereby earned long term capital gain of Rs. 1,04,55,043/- which was claimed as exempted under section 10(38) of the Act. 3.2 The assessee in support of genuineness of the long term capital gain, during the assessment proceedings, submitted that he came to know about investment opportunity in the company M/s Transcend Com Pvt Ltd by some mouth publicity and accordingly he made investment for which amount was paid through banking channel out of the fund available in his bank account. Upon acquisition of shares, the same were immediately dematerialized through the broker M....
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....ration. The family member of the assessee also earned similar capital gain on sale scrip of SRK Industries whereas the assessee and family member were not involved in the investment activity in shares before and after. Therefore, the principles of human probability should also be applied to find out the real intent of the transaction. The AO also referred numerous judicial pronouncement. Thus, the AO in view of the above held the long term capital gain of Rs. 1,04,55,043/- on sale of scrip of M/s SRK Industries Ltd as sham or bogus transaction and treated same as income of the assessee under section 68 of the Act. 4.2 In addition the AO also made addition of Rs. 2,09,100/- being commission expenses incurred for taking accommodation entry in guise of long term capital as discussed above. 5. Aggrieved, assessee preferred an appeal before the learned CIT(A). 5.1 The assessee before the learned CIT (A) besides reiterating his submission, contended that capital gain earned on penny stock does mean that the same is not genuine. It was further submitted that share were duly dematerialized and a kept in Demat account and sale was made on stock exchange which is supported by the do....
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.... off-market trade is no unlawful activity. It is further seen that SLP filed by the department against the said decision has been dismissed by the Apex Court - CIT vs. Mukesh R. Marolia in SLP (Civil) No. 20146/2012 (SC) dated 27.01.2014. When share purchase transactions were off-market transactions, the same cannot be held to be bogus even if any attempt is made to get details from stock exchanges. I hold that any evidence collected behind the back of appellant and not provided the opportunity of cross examination, the same cannot be used as evidence against the Appellant to make impugned addition. Even in absence of the statement, I find that (he AO has not brought on record any other material collected through independent inquiries to show that the amount in question should be treated as undisclosed income of the Appellant when the Appellant furnished all the documents which were available to establish that the LTCG claimed by the Appellant was genuine. On the other hand, the shares are in the appellant's demat account from 08.11.2012 onwards which is credible and independent evidence, therefore, shares are held by the appellant for a period of more than 12 months f....
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....ot sustainable." -** (c) Decision of Hon'ble Gujarat High Court in the case DCIT Vs. Mahendra Ambalal Patel Tax Appeal No. 462 of 1999' 13th April, 2010 40 DTR (Guj.) 243 wherein the Hon'ble High Court held as under: "Though the AO has placed reliance upon the statements of Shri Manoj Vadodana and Shri G. C Patel for the purpose of taxing the amount in the hands of the assessee, despite specific request being made by the assessee for cross-examining both the said persons, the AO has not permitted the assessee to cross-examine them. In the circumstances, no reliance could be placed upon the statements of the said persons as the respondent assessee had no opportunity to cross-examine them. The statements made by the aforesaid persons would have no evidentiary value and as such, would not be admissible in evidence. " (d) Decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Kantibhai Revidas Patel Tax Appeal No. 910 of 2013 wherein it was held as under: "The Ld. A.O. had used this statement without allowing cross examination of Vikas A. Shah which is against the principle of natural justice. Hon'ble ....
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....e appellant with a difference that in the cited case the allegation was in respect of share application money while in appellant's case it pertains to LTCG. I have gone through order of the Hon'ble ITAT, Ahmedabad Bench in the case of. Chartered Motors (supra) and it is seen that in that case the share application money was received by that assessee through various companies including Buniyad Chemicals and Alembic Securities Pvt. Ltd. allegedly operated by Shri Mukesh Choksi. It was the I case of the AO that Shri Mukesh Choksi was involved in providing accommodation i. entries and he had provided entries of share application money through various companies to the said assessee. The assessee has placed on record various, evidences, however the AO did not consider such evidences and made addition merely relying on the statement recorded of Shri Mukesh Choksi. It is further seen that the assessee had asked for the cross-examination of such statement, which was effectively not provided by the AO. After considering such factual aspects of the case, the Hon'ble Tribunal has held that in the absence of opportunity being granted to the assessee to cross-examine the stateme....
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....t Singh Suri (supra) (iii) DCIT Vs. Mahendra Ambalal Patel (supra) (iv) CIT vs. Kantibhai Revidas patel(supra) In view of the above settled position of law, we find force in the argument of the assesses that the statements of the persons mentioned above are not admissible evidence against the assesses. In absence of these statements, we find that no other material has been brought on record by the Revenue to show that why still the amount in question should be treated as income of the assesses when the assessee furnished all the documents which were available with it to discharge the onus which was upon it u/s. 68 of the Act. In the above circumstances, in our considered view, the addition was made solely based on the inadmissible and unreliable material and therefore addition so made cannot be sustained. We, therefore, delete the addition of Rs 2,00,00,000/- made in the case of M/s Charted Motors Pvt. Ltd. as well as addition of Rs 70,00,00/- made in the case of M/s. Chartered Speed Private Limited. 19. In the result, both the appeals of the assessee are allowed-" 4.4 Further I came across Hon'ble Gujarat High Court decision in Tax ....
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.... were purchased off market for Rs. 130000.00 which were materialized on a later day before sale of shares. According to the learned DR, there is no human probability for rise in the share price of nonworking company. The learned DR vehemently supported the order of the AO by reiterating his findings contained in the assessment order. 9. On the contrary the learned AR before filed a paper running from pages 1 to 357 and contended that the assessee was never supplied the investigation report or any other document suggesting that the script of M/s SRK industries Ltd was manipulated. There was no action by the SEBI against the impugned company. According to the ld. AR, the script of the impugned company was never delisted from the stock exchange and remained active all over. The learned AR vehemently supported the order of the learned CIT-A. 10. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the long term capital gain declared by the assessee on sale of shares of M/s SRK Industries Limited for Rs. 1,04,55,043/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of th....
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....ials are brought on record. As such, we note that the AO in the present case has taken contradictory stand. On one hand, the AO is treating the entire transaction as sham transaction and on the other hand he's allowing the benefit of the cost of acquisition for the shares while determining the bogus longterm capital gain. It is important to note that the AO in assessment order has also made the addition of Rs. 209200/- being 2 percent of the long-term capital gain which the assessee incurred in arranging alleged bogus long-term capital gain. Admittedly, the same was deleted by the learned CIT-A, the revenue has not challenge the same before the ITAT. Thus, it is transpired is this that such expenses were not bogus in nature. Certainly, the impugned expenses have direct nexus with the alleged so-called bogus long-term capital gain but the revenue has not challenge the deletion of the same. Thus, it is construed that the impugned amount was admitted as genuine which is again contradictory to the stand taken by the AO. 10.2 It was also alleged that the price of the share of M/s SRK Industrires Ltd. was increased manifolds in a short period of time which was not believed by the auth....
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..... But it has to be established in each case, by the party alleging so, that this assessee in question was part of this arrangement. The chain of events and the live link of the assessee's action that he was involved in such rigging up of share price should be established based on cogent materials. The allegation as discussed above implies that there was cash exchanged for taking exempted income by way of long term capital gain by way of cheque through banking channels. This allegation that cash had changed hands, has to be brought on record by the Revenue but we find that there is no such whisper in the order of the AO. There was no information brought on record suggesting that there was exchange of cash against the long-term capital gain shown by the assessee. Likewise we also note that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary documentary evidence in support of the identity, genuineness of transaction and creditworthiness of the parties. Therefore the same cannot be made subject to tax under the provisions of section 68 of the Act. 10.5 We also note that there was no dispute raised by the Revenue with respect to the fo....
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....ll from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. The Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of SRK Industries Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith. 10.9 In holding so we draw support and guidance from the judgment of Hon'ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under: 11. On a perusal of the record, it is easily ....
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....ecord. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person....
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....ent of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, ld. A.R. also cited an order of Co-ordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the ld. A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. 10.12 At this juncture we also feel pertinent to refer the order of coordinate bench of Indore in case of Shivnarayan Sharma & Ors bearing ITA Nos. 889/Ind/2018, 474,206,60,987/Ind/2019, where in identical fact and circumstances held as under: 16. Since we are adjudicating the above stated common issue on the basis of above assessee namely Shri Shivnarayan Sharma, we note that the assessee purchased 6000 equity shares of Conart Traders Ltd on 22.10.2011 at a cost of Rs. 1,50,000/- . T....
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....e sale consideration received from sale of equity shares of M/s SAL and addition for estimated brokerage expenses has been dealt by the Co-ordinate Bench of Mumbai Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and the same is squarely applicable on the instant appeals. ******************* 23. We therefore in the light of above judgments which are squarely applicable in the issues raised in the instant appeals are of the considered view that the claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by S....