TaxTMI 
TaxTMI 
2024 (11) TMI 365
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....assessee has sold 38,900 shares in the relevant assessment year through a broker named M/s K.K. Securities Ltd. and earned long term capital gain of Rs. 74,86,799/-. A search u/s. 132 of the Income-tax Act, 1961 (for short 'the Act') was conducted on M/s Raddford Global Group on 09.04.2015, wherein as per the Assessing Officer, it was found that shares of M/s Wagend Infra Venture Ltd. were used as accommodation entries. The assessment has been reopened in the case of assessee u/s. 147 of the Act, alleging that assessee has earned long term capital gain of Rs. 74,86,799/- through accommodation entry in the relevant assessment year and made the addition of (i) Rs. 18,00,000/- on account of investment made on 25.11.2010 for purchasing of 1,50,000 shares of M/s Wagend Infra Venture Ltd. and (ii) Rs. 74,86,799/- on account of LTCG earned on sale of 38,900 shares of M/s Wagend Infra Venture Ltd. 4. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and raised grounds of appeal as well as filed detailed submissions. After considering the detailed submissions, ld. CIT (A) partly allowed the appeal of the Assessee. 5. Aggrieved, assessee is in appeal befor....
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....e A.Y. 2012-13 and 2013-14. In this regard, it is stated as under: Re: For the A.Y. 2012-13 A. The appellant is an individual and filed return of income on 8.08.2012 declaring total income at Rs. 21,74,900/-. B. On 25.11.2010, appellant purchased 1,50,000 shares of M/s Agarwal Holdings Ltd., later known as M/s Wagend Infra Venture Ltd. by investing Rs. 18,00,000/- (@ Rs. 12 per share) through physical mode. These shares were received in physical form with a lock in period of 12 months. Later on these share were dematerialized. C. Out of 1,50,000 shares, appellant has sold 38,900 shares for the A.Y. 2012-13 through a broker named M/s K.K. Securities Ltd. through online mode and earned long term capital gain to the tune of Rs. 74,86,799/-. D. A search U/s 132 was conducted on M/s Radford Global Group on 9.04.2015, wherein, as per the Assessing Officer, it was alleged that the shares of M/s Wagend Infra Venture Ltd. were used as accommodation entries. E. The assessment has been re-opened in the case of appellant U/s 147 of the Act, alleging that appellant has earned long term capital gain of Rs. 74,86,799/- on the sale of 38,900 shares of M/s Wagend Infra Venture Ltd and t....
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....t considering that the there is NO connection of the alleged entry providers, much less brought on record by the AO, without conducting any independent inquiry, without bringing on record any evidence against the assessee, against the principles of natural justice, in violation of the settled legal jurisprudence and merely and only following the alleged report. Re: CIT (A): Against the aforesaid assessment order, the assessee filed an appeal to the CIT(A) contending the addition on merits. Beside the same, the assessee also challenged the reopening as bad in law and further on the ground that the Ld. AO has erred in the law in invoking the provision of section 147 instead of section 153C of the Act since in the case, it was reopened on the basis of the information received during search and seizure operation conducted upon M/s Radford Global group. The Ld. CIT(A) without considering the submissions of the appellant, without pointing out any defects in the documents submitted, confirmed the assessment order in a mechanical manner. From the perusal of the order of the CIT (A), it shall make it clear that in the same, the Ld. CIT (A) has passed the order on irrelevant and extraneo....
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....e LTCG to be an accommodation entry. Reliance in this regard is further placed on the decision of Pr. CIT vs. Sandipkumar Parsottambhai Patel [2023] 150 taxmann.com 192 (Gujarat). 2. Appellant is a regular investor and there is no adverse report of SEBI etc. against the appellant: It is pertinent to state that in this case, the statement of the appellant was recorded and during the course of the assessment proceedings. During recording of the same, the appellant clearly stated that he is regular investor and making the investment in shares. Further in this regard the kind attention is invited to page no. 100, 103 and 104. This fact has not been denied by the Ld. AO while passing of the assessment order. The submissions are therefore that only because alleges a scrip to be a penny stock does not mean that actually that scrip is a penny stock as it is not the case that the appellant has invested only in this scrip. In this case, the appellant has made a genuine transaction of the aforesaid scrip and sold the same when the prices are high. Further, it is pertinent to state that in the entire assessment order of the CIT (A) order, it is has not been stated that against the scrip to w....
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....ring the assessment proceedings. It is provided U/s 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. The submission is therefore, the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and affirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. In the given facts of the case, it shall be clear that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 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. Reliance in this regard is being placed on the decision of the jurisdictional High Court in the case of Pr. CIT v. Smt. Krishna Devi [2021] 126 ta....
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....is unaccounted money. The bank statement evidencing receipt of funds from the Share Broker has already been furnished in the course of assessment proceedings. The AO have not brought any material indicating that said amount proposed to be taxed has not been received from the Share Broker or the sum received is from the sources other than the sale consideration claimed against sale of shares. In view of these facts, the addition should not be made under section 68 of the Act. No evidence has been brought on record to establish any link between the assessee herein with the entry operators who were allegedly involved in price rigging of shares artificially or any other person named in the assessment order being involved in any price rigging and also the exit provider. In the present case, there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which has no legs to stand and therefore has to fall. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. Reliance in this regard is placed on the decision of PCIT v. Sandipkumar Parso....
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....e assessment proceedings have been initiated; 7.4 No addition can be sustained without any cogent evidence on record that assessee was involved in converting his unaccounted income into exempt long term capital gains by conniving with the so-called entry operators and brokers who were involved in artificial price rigging of shares; 7.5 Evidence is brought on record to prove that assessee was directly involved in price manipulation of the shares dealt by him in connivance with the brokers and entry operators; 7.6 Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus; 7.7 The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the Ld AO, etc. 8. No addition can be made U/s 68 of the Income Tax Act: In this regard, it is submitted that the assessee is not maintaini....
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....s case is also against the binding instruction of the CBDT dated 11.10.2019 pertaining to issuing the standard operating procedure, which is required to be followed by AO while handling the penny stock matter. It is submitted that in this case, the addition has made without following such express mandate of the CBDT and the addition is therefore bad on this count also. Before closing it is stated that in this case the appellant has also challenged the re-assessment proceedings on various grounds which has been clearly mentioned before the written submission filed before the CIT(A), which is part of the paper-book filed by the appellant and the same is not repeated here for the sake of brevity." 7. On the other hand, ld. DR for the Revenue vehemently argued that the issue involved in this case is penny stock and lower authorities have given elaborate findings and assessee could not explain why the assessee has made the investment on such companies which has no financial capacity and not justified enough material to make investment in these companies. He prayed that addition may be sustained on the basis of detailed findings of lower authorities. 8. Considered the rival submissio....
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....nal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not 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 subst....
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....espondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation 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 j....
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....ned. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue 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, ....