TaxTMI 
TaxTMI 
2024 (10) TMI 995
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....tment Ltd (now known as super space infrastructure Ltd)was disbelieved by the learned assessing officer on reopening of the assessment and sale consideration of Rs. 23,404,695/- added under section 68 of the income tax act was confirmed by the learned CIT - A holding that reassessment and addition under section 68 is correctly made. Therefore, assessee has challenged, reopening of the assessment as well as the addition on merits on several counts. 3. At the beginning of the hearing, the learned authorized representative categorically submitted that ground number 1 against the reopening of the assessment is not pressed and therefore same is dismissed. 4. This leaves us with the only aspect in this appeal with respect to the addition made under section 68 of the income tax act and denial of claim of exemption under section 10(38) of the act. 5. Brief facts of the case shows that assessee is an individual earning income from other sources, income from house property filed her return of income on 31/1/2015 at a total income of Rs. 2,056,540. Subsequently the information has been received from The Principal Director of Income Tax (Investigation) Kolkata regarding investment mad....
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....sessee was having 4 lakhs as of the same company. All the shares were Dematerialized in the Demat account of the assessee. These shares were shown into the balance sheet of the earlier years of the assessee as an investment. Assessee also submitted the corporate announcement for bonus and subdivision of the shares. To support its contention assessee submitted:- i. Purchase bill dated 26/3/2012. ii. Bank statement disclosing the payment made on 27/3/2012. iii. Money receipt issued by the seller of the shares dated 26/3/2012. iv. Advertisement published in the financial express by the seller for sale of shares. v. Shares certificate in physical form dated 28/6/2012 transferred in the name of the assessee. vi. The Matt statement of the assessee to show that the above purchase of the shares have been entered. vii. The corporate announcement for bonus and subdivision of shares made by the company. viii. Annual accounts of the assessee to show that the above investment is shown as an investment. 7. These shares were sold at an average rate of Rs. 58.51 per share resulting into a sale consideration of Rs. 23,404,69....
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.... on the same. It was also stated that the shares were purchased on the instruction of her friend. 10. The learned assessing officer thereafter referred to the findings of the investigation wing of Kolkata where from the report was received based on which reopening was made. This was extracted at paragraph number 8 -14 of the assessment order. The learned assessing officer thereafter referred the statement of the assessee in paragraph number 14, he reached at the conclusion that assessee was not having a clear answer. He further referred that the above company was a very small company and does not have any substantial business. Therefore, the profit earned by the assessee from the above company is not genuine. The price of the shares have also moved significantly in absence of any financial backing. He referred to in paragraph number 17 the names of the various exit providers wherein it was held that the volume has been contributed by the beneficiaries of bogus long term gain. The learned assessing officer reached at the conclusion that: - i. The financial of the company were very poor during the period when the preferential shares were allotted. ii. The busines....
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....paper book containing 76 pages wherein the details of purchase of the shares and sale of the shares along with submissions filed before the learned lower authorities were enclosed. Assessee also filed a case law compiler action containing 11 decisions wherein the additions made in the similar manner is deleted. He further referred to the several judicial precedents wherein shares of the same company were dealt with and addition on identical basses made by the learned that lower authorities was deleted. He specifically referred to the latest decision of the coordinate bench in ITA number 3256/M/2022 four assessment year 2014 - 15 in case of ChiragTej PrakashDangiversus ITO of C bench dated 20/2/2024 wherein the addition is deleted. The assessee also submitted a fact sheet of the whole transaction. 14. The learned authorized representative vehemently submitted that issue is squarely covered in favour of the assessee by the decision of the coordinate bench he specifically referred to paragraph number 9 - 15 of the above decision. 15. It was further submitted that arguments of the assessee are similar to the arguments advanced by the assessee in case of Mrs. Seema Bafna { ITA no ....
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.... order dated 27/1/2021 has held that Sarvottam Advisors private limited from whom the share assessee has purchased has been restrained from trading in shares for six months. vi. The call data records obtained from the Mahanagar Telephone Nigam Ltd of the assessee and her relatives show that neither the assessee nor any of his relative had any incoming/outgoing calls made from or to Sarvottam advisory private limited from whom assessee has claimed to have made the purchases of the share and therefore the purchase of share is bogus. vii. The learned CIT - A deleted the addition merely based on the judicial precedents and submission made by the assessee and therefore the order of the learned CIT - A is not sustainable. 12. The learned authorized representative submitted a paper book containing 88 pages. It was submitted that assessee has claimed long-term capital gain exempt under section 10(38) of the act on sale of shares of Surabhi chemical and investment Ltd. The shares were purchased on 27/3/2012 in quantity of 4000 shares for Rs. 10 lakhs. Further on 23/8/2012 the company issued bonus shares of 36,000 shares and further the shares of the company were s....
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....registered stockbrokers, purchase bills, payment receipt, share certificate, Demat statement, bank statements, rate publication of Bombay stock exchange, advertisement issued by the seller in newspaper and other documents. Though the assessee had made off market purchase of the shares, but the payment has been made through banking channels and same has not been disputed. Off market purchase of shares is not prohibited. This investment was also disclosed in the balance sheet of the earlier years. The shares were also transferred in the Demat account of the assessee. To the sale the entire sale of shares was made through online mechanism on floor of Bombay stock exchange through/broker M/s LFC securities private limited on making the payment of securities transaction tax, service tax and stem duty et cetera. The shares were also delivered by the assessee through Demat account on sale of the shares. With respect to the statement of the assessee on oath recorded under section 131 of the act it was submitted that assessee has declared the transaction as genuine. He further submitted that the securities and Exchange board of India had not issued any notice to the assessee and has not cla....
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....exchange through SEBI registered/broker and the Bombay stock exchange had confirmed the sale of shares made by the assessee at prevailing market price. Ld. AO has not brought any material to show that exit providers do exist in case of the assessee and those are bogus. 15. With respect to the allegation of the learned assessing officer that in response to summons issued under section 131 of the act, assessee could not justify the genuineness of the transaction, he submitted that assessee appeared before the learned assessing officer and categorically confirmed the genuineness of the transaction of purchase and sale of shares and also filed the copies of the contract made, confirmation of stockbroker, purchase bill, payment receipt, share certificate, Demat statement, bank statements, rate publication of Bombay stock exchange and advertisement issued by the seller in the newspaper. He further referred that open offer for buyback of shares and other documents are also submitted before the learned assessing officer. 16. He further submitted that the contention of the learned departmental representative that assessee has purchased the shares at the rate of Rs. 250 per....
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....t find any direct or indirect link with the non-genuine person/entity and therefore did not disbelieved the genuineness of the sale transaction of shares. As the assessing officer could not find any calls received or made to Sarvottam advisory private limited from whom the assessee has purchased shares, incorrectly presumed that the purchase of shares by the assessee is non genuine. 19. When ld. AO has call records of Sarvottam Advisory services Pvt Ltd, that itself proves that that party exist, so issue of notice u/s 133 (6) to that party and its non-compliances does not go against the assessee. 20. He further referred to the decision of the honourable jurisdictional High Court and other courts as under: - i. PCIT versus Indravadan Jain HUF (ITA number 454 of 2018) Bombay High Court ii. CIT versus Shyam R Pawar 54 taxmann.com 108 Bombay High Court iii. CIT versus jamnadevi Agarwal 20 taxmann.com 529 Bombay High Court iv. PCIT versus Krishna Devi 126 taxmann.com 80 Delhi High Court v. CIT v Nilesh Jain HUF 163 taxmann.com 229 (MP) vi. PCIT V Ambalal Chimanlal Patel 162 taxmann.com 892 (Gujarat) vii. PC....
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....nsfer details are available at page number 19 of the paper book. vii. These shares were received in the Demat account of the assessee with Axis bank Ltd in the PID number IN 300484 with client ID 15183850 on 5/7/2012. This Demat account is placed at page number 20 of the paper book. viii. Subsequently on 23/8/2012 36,000 bonus shares were also credited in the Demat account and further on subdivision of the shares on 13/4/2013 the total 400000 shares were available with the assessee. ix. For the deposit of bonus shares and stock split, the respective corporate action was taken. On 30 July 2012 nine shares for one share held by the assessee was issued at bonus and on 10 April 2013 there was a stock split from the face value of Rs. 10 per share to Rs. 1 per share. Therefore the 40,000 shares after the bonus became 4 lakhs shares available with the assessee. x. These shares were disclosed by the assessee in her balance sheet as at 31st of March 2013 at an investment of Rs. 10 lakhs. xi. The return for assessment year 2013 - 14 was also filed by the assessee. xii. Subsequently through LFC securities private limited the assessee sold.....
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....e to explain the above transaction and issued summons under section 131 of the act to the assessee and to the brother-in-law of the assessee. When assessee was questioned in question number 6 about the said transaction, she submitted that the said transactions are made by his brother-in-law Mr. Lalit Jain who is looking after these affairs Even in response to question number seven & in question number eight she said that she doesn't know about Surabhi chemical and investment Ltd. In the statement of Mr. Lalit Jain in answer to question number eight he submitted that he is doing the share market operation on behalf of the family. He explained that he is doing this activity for the last six - seven years as an investor. In answer to question number 12 also he gave the name of various companies which are held by the family and himself as an investment. With respect to the transaction of Surabhi chemicals and investment Ltd, he submitted that the shares were purchased from Sarvottam Advisory services private limited, transferred in the Demat account of the assessee and thereafter sold and has earned profits. Regarding the decision of purchase of the shares, he submitted that the issue ....
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....lant, finding of investigation wing and concluded that the script dealt with by the appellant of Surabhi chemicals and investment Ltd was a penny stock which was used in providing accommodation entries to the beneficiaries. The appellant submitted before the AO that the purchase of the shares was made through private placement but was dematerialized and was held in the Demat account for more than 12 months and sale of the share was done through stock exchange and payments were also exchanged by banking mode both for the purchase as well as sales. It was also submitted that each of the purchase and sale of shares was supported by contract notes and hence, the long-term capital gain on was genuine and not bogus. However, the AO did not accept the contention of the appellant and rejected the claim of exemption of long-term capital gain made by the appellant under section 10(38) of the act and made the addition of the said amount of Rs. 22,652,350/- as unexplained cash credit under section 68 of the act. The AO also made the addition of Rs. 1,182,617/- as commission expense incurred for taking accommodation entry as unexplained expenditure under section 69C of the act. Aggrieved by the....
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....ther-in- law Mr. Lalit Jain in the assessment order. The AO is also given details about the companies who had sold the shares to the appellant and the companies to move the appellant subsequently sold the shares. The said companies either were not present at the given address or did not respond to the notices sent by the AO under section 133 (6) of the act. The AO has also given rebuttal of the submissions of the appellant and concluded that the appellant without having any knowledge in shares and securities on such huge appreciation of shares which was to the tune of 2365% of the investment in the company in which the investment was made was not earning any profit but still the stock prices increased which was the result of rigging. 8.2 the AR of the appellant in his written submission dated 28/11/2023 submitted that there are direct judicial decisions of honourable jurisdictional High Court of Bombay and ITA T regarding allowability of long-term capital gain on sale of shares of Surabhi chemicals and investment Ltd and similar stocks which were considered as penny stock by the AO. It was submitted that in case of a new spirit Sarkar versus ITO (ITA number 390/M/2020 date....
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.... High Court's and Supreme Court's 1. PCIT versus Renu Agarwal 456 ITR 249 (SC) 2. PCIT versus Indravadan Jain HUF 3. DCIT versus Parasben K Kochar 130 taxmann.com 177 (SC) 4. ITO versus Jamnadev Aggarwal 328 ITR 656 (Bom) 5. CIT versus Shyam R Pawar 229 taxman 256 (Bom) 8.7 in the case of PCIT versus Rima. No other was (supra) honourable Supreme Court held that when there is no adverse comment from the stock exchange of SEBI with reference to the company who shares were involved in the transactions, such as cannot be called as penny shares and the exemption on capital gains cannot be denied especially quoting the statement of unrelated persons and on the basis of unfounded presumptions. 8.8 in the case of PCIT versus Parasben Kasturchand Kochar, the Gujarat High Court in 130 taxmann.com 176 (Gujarat) held as under: - Xxxxxxx 8.9 I have gone through all these judicial pronouncements which are in favour of the appellant. In all the decisions the judicial view is that if shares are purchased by the appellant for which the appellant provides necessary evidence and the rates at which the sales are purchased and sold....
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....could not have been doubted. It is also a fact that ld. AO has made the call details of sarvottam advisory services private Limited, thus, party was in existence at that time. With respect to those shares' sale certificate dated 28/6/2012 was also placed before the learned assessing officer wherein the shares were transferred in the name of the assessee and subsequently Demat. How assessee came to know about the seller who wanted to sell the shares, the assessee submitted the advertisement given by the seller in financial express. Based on the same, the learned assessing officer inquired by looking at the call record of the assessee and his family member and found that no such calls were made to Sarvottam advisory services private limited. When the assessing officer is having the details about the call record of the person who sold the shares to the assessee, wherein the question now remains of failure on the part of the assessee to produce the seller before the assessing officer. In view of such overwhelming evidence of purchase of the shares, we find that existence of the shares in the Demat account of the company cannot be denied or rejected. 29. Now the issue comes wit....
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....curities and Exchange board of India has passed an order against Sarvottam advisory private limited from whom the assessee has purchased shares, however the period of investigation was different then the period in which the assessee has purchased the shares from that party. Even in the subsequent order of the SEBI no penalty was imposed on Sarvottam advisory private limited. Therefore, that party was exonerated. 33. Regarding the price of the shares at which assessee purchased those shares are wrongly mentioned at Rs 2.52 per share, the assessee has purchased those shares at the prevailing market price. 34. Several judicial precedents of the honourable High Courts and coordinate benches are relied upon before us, which were not controverted by the learned departmental representative, which were also relied upon before the learned CIT appeal by the assessee, binds us judicially, unless divergent and distinguishing features are pointed out. No such efforts were made before us. 35. Hon. Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi [[2021] 126 taxmann.com 80/279 Taxman 148 (Delhi)] has commented on the scope and applicability of Doctrine of Pre....
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....ed and decided in favour of the assessee holding as under :- "The assessee has filed this appeal challenging the order dated 14.12.2022 passed by the learned CIT(A), National Faceless Appeal Centre, Delhi and it relates to A.Y. 2014-15. The grievance of the assessee is that the learned CIT(A) was not justified in confirming the addition of Rs. 1.51 crores made by the Assessing Officer under section 68 of the I.T. Act, being sale process of shares alleged penny stock companies. 2. Though the assessee has raised a ground challenging the validity of notice issued under section 148 of the I.T. Act, the learned AR did not press the same at the time of hearing. Accordingly, the said ground is dismissed as not pressed. 3. Facts relating to the addition of Rs. 1.51 crores relating to sale value of shares of alleged penny stocks are stated in brief. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has disclosed long term capital gains of Rs. 1.45 crores arising out of sale of shares and claimed the same as exempt under section 10(38) of the Act. The relevant details thereof are tabulated below:- Name of scrip Sale ....
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....ematerialized. Later on, they were sold in the platform of the Bombay Stock Exchange. The sale consideration has been received by way of account payee cheque. He submitted that the assessee has furnished all the required documents to prove the factum of purchase and sale of shares. He submitted that the Assessing Officer did not find any deficiency/defect in the documents so furnished by the assessee. The learned AR submitted that all the companies are still active in the stock exchange and hence it cannot be considered as bogus companies. He submitted that the assessee is an ordinary investor in shares and it was not shown that the assessee was a part of the group, which was involved in the alleged prices rigging of the shares. Accordingly he submitted that the tax authorities are not justified in disbelieving the transactions of shares carried on by the assessee. In support of his submission, he placed reliance on the following decisions : i) PCIT Vs. Indravadan Jain HUF (ITA No. 454 of 2018)(Bom) ii) PCIT Vs. Ziauddin A. Siddiquie (ITA No. 2012 of 2017) (Bom) iii) CIT Vs. Shyam R. Pawar (54 taxmann.com 108)(Bom) iv) CIT Vs. Smt. Jamnadevi Agra....
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....ng of the Income tax department, Kolkata to arrive at the conclusion that the long term capital gains reported by the assessee is bogus in nature. We notice that the investigation report prepared by Investigation wing, Kolkatta is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. We notice that the AO has placed reliance on the said report without bringing any material on record to show that the transactions entered by the assessee were found to be a part of manipulated transactions, i.e., it was not proved that the assessee has carried out the transactions of purchase and sale of shares in connivance with the people who were involved in the alleged rigging of prices. The Ld A.R submitted that the SEBI, who is regulator of stock market operations, have conducted enquiries and the interim order passed by it suspending the trading in two of the companies mentioned above, has since been revoked. In any case, it is stated by Ld A.R that the transactions carried on by the assessee were not subjected to scrutiny by SEBI at all. 10. We notice from the statement recorded by the AO from ....
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.... submits that if this was nothing but an accommodation of cash or conversion of unaccounted money into accounted one, then, the evidence should have been complete. Change of circumstances ought to have, after the result of the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he submits that the Appeals do not raise any substantial question of law and deserve to be dismissed. 5. We have perused the concurrent findings and on which heavy reliance is placed by Mr. Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of th....
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....eferred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vit....
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....t help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. In the case of CIT vs. Jamnadevi Agarwal (supra), the Hon'ble Bombay High Court held that the transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. In the case of PCIT vs. Indravadan Jain (HUF) (supra), the broker through whom, the assessee had carried out the transactions have been alleged to have been indulged in price manipulations and the SEBI had also passed an order regarding irregularities and synchronized trades carried out in the shares by the said broker. However, the evidences furnished by the assessee with regard to purchase and sale of shares were not doubted. Under these set of facts, the Hon'ble Bombay High Court held as under:- "....Th....
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....lished that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee. 15. We noticed earlier that the AO has assessed the Sale consideration of shares as unexplained cash credit u/s 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the revenue. The sale of shares has taken place in the online platform of the Stock exchange and the sale consideration has been received through the stock broker in banking channels. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of sec. 68 of the Act. 16. Since we have held that the sale transactions of shares cannot be doubted with, the addition made by the AO with regard to estimated commission expenses is also liable to be deleted. 17. In view of the foregoing discussions, we hold that the sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we set aside the order passed ....