TaxTMI 
TaxTMI 
TaxTMI 
2025 (3) TMI 91
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....ansactions in the investment and sale of shares in M/s. Kappac Pharma Ltd. [hereinafter referred as KPL]. The Assessing Officer examined the sale transactions and noted the above shares KPL is identified by Investigation Wing of Kolkata as penny stock. The modus operandi followed by such operators was to first show, purchase of shares of some penny stock companies controlled by them at very nominal price and thereafter sale of the same at very high price by rigging the price of these shares. The holding period of shares is shown exceeding 18 months so that the entire capital gain is claimed as exempt u/s. 10(38) of the Act. 2.1. The assessee has purchased KPL shares for Rs. 2,00,000/- on 12-10-2012 and sold the shares for Rs. 54,75,306/- between 23-04- to 23-05-2014 and claimed exemption of Rs. 52,75,306/- u/s. 10(38) of the Act. Therefore a show cause notice was issued to the assessee as to why not deny the claim of exemption u/s. 10(38) of the Act. 2.2. In response, the assessee replied that 10,000 shares of KPL was purchased on 10-10-2012 then dematerialized and sold the shares and earned Long Term Capital Gain of Rs. 52,75,306/- through recognized stock exchange and also paid....
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....the income u/s. 68 of the Act. The Assessing Officer also made an observation that this is the only share transactions made by the assessee, whereas the assessee is in the share transactions as early from August 2016 wherein she was allotted with the Demat Account No. 1202300000070502 with M/s. Emkay Share and Stock Brokers Ltd. with DPID23000 [copy of the same is placed in the Paper Book as Annexure A, details of the share trading as Annexure B]. Thus the Assessing Officer is not a onetime trader or investor as observed by him. The shares of KPL were acquired by the assessee as the financials of the company also show an increase in share capital. The shares of KPL were not included in the penny stock list issued by Bombay Stock Exchange at the relevant time or even in subsequent time. Further, the assessee is neither involved in nor named in any proceedings by the SEBI. The only proceedings before SEBI against M/s. Kappac Pharma Ltd. was a penalty of Rs. 1,00,000/- for compliance issues and not for any price rigging. The assessee also sold the shares after demating through SEBI registered authorized broker and a prominent broker namely M/s. Emkay Global Financial Services, having ....
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....(ITA No.112/SRT/2023) (xii) Shri Arnav Goyal Vs. ITO (ITA No.275/JP/2020) (xiii) Suresh M. Jain HUF Vs. ITO (ITA NO.6614/MUM/2019) (xiv) DCIT Vs. Saurabh Mittal (ITA No. 16/JP/2018) (xv) Navneet Agarwal Vs. ITO [2018] 97 taxmann.com 76 (Kolkata - Trib.) 6. Per contra, Ld. Sr. D.R. appearing for the Revenue supported the order passed by the Lower Authorities and pleaded to uphold the additions made by the Assessing Officer. 7. We have given our thoughtful consideration and perused the materials available on record including Paper Book filed by the assessee. It is seen from records, assessee produced complete evidence regarding buying of the shares, demat account for dematerialization of shares, sale transaction, payment received through bank accounts and statement of broker, etc. for verification of genuineness of transaction. Just merely the details of transaction done by the assessee was matching with some pattern of fraudulent transactions done by some third party namely Shri Anand Ramanlal Trivedi, who was the Director of KPL. Further the Assessing officer has erroneously mentioned that the assessee is not a regular investor in shares but purchase of KPL share as the f....
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....ourt judgements and also the fact that the assessee is a retaining Kappac Pharma shares as stock-in-trade and the closing stock is valued at the market rate. Since the market rate is lower it has incurred a business loss of Rs. 53,02,455/- though the shares are not sold. The difference is only because the valuation of shares which is as per the Accounting standard and the share of Kappac Pharma are still forming part of closing stock of the assessee company as on 31.03.2019. Thus, we have no hestiation in deleting the disallowance made by the AO which was correctly deleted by the ld. CIT(A). Thus the grounds raised by the Revenue is without any basis and the same is liable to be rejected. The remaining ground Nos. 4 to 6 are general in nature, which does not require specific adjudication." 8. We have considered the concurrent findings of fact arrived at by the CIT(A) and Tribunal and are in complete agreement with such findings to the effect that the assessee has proved the genuineness of the transactions and established on online trading platforms that it had no control what so ever on share prices and thus, incurred losses in shares of Alang Industries Gas Ltd. It was also foun....
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....ains in a short period, does not mean that the transaction is bogus, as all the documents ---and evidences have been produced before assessing officer. The shares were sold in piece meal on tate through recognized stock exchange at quoted price. 23. Regarding the statement of Shri Anil Khemka, alleged entry provider, which is reproduced in Assessment Order at Page 8, we note that said statement recorded neither implicate Sun & Shine Worldwide Ltd nor the broker Trade bulls Securities Pvt. Ltd and nor the assessee. We note that physical delivery of shares is proved by the memorandum of transfer of shares stated in the share certificate being registered on 30-10-2012. Regarding the escalation of prices of shares of M/s Sun & Shine Worldwide Ltd., that is, the prices have increased by 140 times over the period of 17 months. At this juncture, it is submitted by Id Counsel that prices of shares are determined by the market forces and not solely on the basis of financial statements. 24. We also note that Assessing officer and CIT(A) has relied on the case of Sumati Dayal vs. CIT (214.LIB 8011(SC). We are of the view that said decision is not applicable to the assessee under considera....
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....al 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, we are of the view that addition should not be made under section 68 of the Act. 26. In the light of the documents and evidences submitted by the assessee, we find that 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 in our considered opinion has no legs to stand and therefore has to fall. We take note that Id. DR could not controvert the facts which are supported with material evidences furnished by the assessee. We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidences in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Nei....
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....his appeal fails and is hereby dismissed. In view of the aforesaid, the connected Tax Appeal No. 521 of 2022 also stands dismissed." 7.3. The Hon'ble Apex Court in the case of PCIT vs. Kuntala Mohapatre (cited supra) deleted the addition made on account of statement from entry operators who are unrelated parties with the assessee by observing as follows: "Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 Capital gains -Income arising from transfer of long term securities (Illustrations) - Assessment year 2014-15-Assessee filed its return for relevant year - Subsequently, pursuant to a survey assessee filed revised return and claimed exemption in respect of long-term capital gains on shares under section 10(38) - Assessing Officer rejected assessee's plea and made additions under sections 68 and 69 by relying on statements from 'entry operators' On appeal, Commissioner (Appeals) accepted assessee's claim, noting that shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax Tribunal upheld Commissioner (Appeal)'s dec....
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.... be set aside as is the crux of the case made out by the assessee. 17. We have considered the entire set of judgments relied upon by the assessee and order passed by the ITAT in identical case, we find substance in such submission advanced by the Ld. Counsel appearing for the assessee that the issue is squarely covered by the judgment in case of Shri Prakash Javia Huf vs. ITO & Ors. in ITA No.464/Ind/2019 & Ors., wherein the scrip of M/s. Kappac Pharma Ltd. has been held to be genuine and the claim under Section 10(38) of the Act has been allowed with the following observations: "21. We have heard rival contentions and perused the records placed before us and carefully gone through the submissions, paper book and plethora of judgments referred and relied by both sides. Common issue raised in all three appeal is genuineness of claim of Long Term Capital Gain as exempt income u/s 10(38) of the Act arising out of the transactions of sale of equity shares of Kappac Pharma Limited. 22. The assessee namely Prakash Javia HUF, Jayesh Kumar Javia HUF and Prajash Javia purchased equity shares of Kappac Pharma Limited totaling to 3000, 2000 & 3000 respectively in cash through offline mo....
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....ty share, perception of its growth and the market sentiments. Unless and until the company of which the equity shares are being traded is found to be involved in malpractices the financial results are not commensurate with the prices at the NSE/BSE portal and sufficient proofs are available showing the alleged company to be a bogus/penny stock or paper company, one cannot question the genuineness of transactions carried out on the portal of NSE/BSE which are under the control of Securities and Exchange Board of India." [emphasis supplied] 25. The above finding of this Tribunal indicates that there are various other factors for the sudden rise and fall in the share prices of a listed company which are majorly linked to the market sentiments, performance of the sector, availability of shares i.e demand and supply, holding of the promoters, future prospects etc. In the instant case, nothing on record is available to show that any enquiry was conducted by department at the business premises of Kappac Pharma Ltd. and its involvement in this alleged racket of managing bogus LTCG. Kappac Pharma Ltd. is registered with Registrar of Companies and is still live at the portal of Registrar....
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....cate is to be deposited and the correctness of the certificate is verified through the company which has issued the share certificate. Once the details are found to be correct the shares are dematerialized. 30. Now coming to the sale part: The assessee has opened DMAT account with Kotak Securities Ltd. which is known to be a reputed company engaged in the providing services as share broker. Kotal Security is registered with Bombay Stock Exchange. Sale is effected on the portal operated and controlled by Bombay Stock Exchange. The seller has no idea as to who is the buyer on the other side. On the portal the payment for the sale is received by broker which in this case is Kotak Security Limited who after deducting the brokerage and other applicable tax including Security Transactions Tax remits the balance amount in the bank account of the assessee which is registered in the DMAT Account. In the instant case, no flaw or any inconsistency has been found by the Revenue authorities with all these transaction of purchase and sale. 31. Further the aspect that whether Kappac Pharma Ltd is a 'penny stock' company or not has been dealt in detail by I.T.A.T., Kolkata Bench in the case of....
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....cally follow suit as a necessary corollary. No other argument has been raised before us during the course of hearing. This assessee's latter appeal ITA No. 775/Kol/2018 is allowed." [emphasis supplied] 32. Records placed before us also shows that report of the investigation wing or any enquiry conducted from 3rd persons were not made available to the assessee which thus grossly violates the principles of natural justice. As the assessee never got opportunity to go through these reports this action of the lower authorities was not justified in view of ratio laid down by Hon'ble Supreme Court in the case of Sona Builders (supra) wherein Hon'ble Court held that: Para 7 -" Having regard to the statutory limit within which the appropriate authority has to act and his failure to act in conformity with the principles of natural justice, we do not think we can remand the matter to the appropriate authority. We must set his order aside. Para 8 - "The appeal is, accordingly, allowed. The judgment and order under appeal is set aside. The order of the appropriate authority dated 31-5-1993 is quashed." [emphasis supplied] 33. We, therefore, in the totality of facts and in view o....
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....ion Wing, Kolkatta. The A.O. made the disallowance without documentary proof whereas the assessee proved the genuineness of the transactions and established on online trading platforms and it had no control whatsoever on share prices and thus incurred losses in shares of Alang Industrial Gases Ltd. It is the case of the assessee that it sold only part of the shares and remaining shares have been held by the assessee in subsequent assessment year also. Thus following Jurisdictional High Court Judgment, the Ld. CIT(A) deleted the addition. 9.1. The Ld. D.R. could not produce any contra judgments in support of its case, whereas Ld. Counsel for the assessee submitted before us the following case laws: 10. The Jurisdictional High Court of Gujarat in the case of Himani M. Vakil (cited supra) held as follows: "Assessee filed her return declaring certain amount as short term capital gain arising from sale of shares - Assessing Officer taking a view that share transactions were bogus, added amount of capital gain to assessee's taxable income as unexplained cash credit - Tribunal, however, concluded that genuineness of transactions was duly proved by contract notes for sale and pur....