TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 1657
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.... and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short "Act") were issued and served on the assessee. During the assessment proceedings, Assessing Officer observed that assessee has traded in the scrips of M/s. Shree Shalin Textiles Limited. The above said scrip is found to be stocks in which price manipulations were carried out and trading in the scrips was suspended on Bombay Stock Exchange and accordingly, Assessing Officer observed that assessee has purchased 49,925 scrips on 05.12.2012 and 16.04.2012 at the purchase value of Rs..9,700/- on 29.04.2013 and 11.07.2013 and registered an amount of Rs..29,55,210/ and the same was sold for Rs..29,64,910/- and Assessing Officer relied on the report of investigation wing and considered the above scrip as penny stock and accordingly, asked the assessee to file its objections. 4. Accordingly, assessee submitted that assessee apart being a regular tax payer is also investor regularly transacts in shares listed on BSE/NSE since last many years. Documents enclosed in the Paper Book in support of claiming exempt LTCG of Rs.. 29,55,210/- it arose on online sale of alleged scrip listed on BSE sold through SEBI registered stock b....
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....ussed above have proved that the director of Shree Shalin textiles Ltd and associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capital gains. d. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes. i Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. ii The assessee resorted to a preconceived scheme to procure long-term capital gains by way of price difference in share transactions not supported by market factors iii Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned long term capital gain is not allowable. e. Failure of Assessee to discharge....
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....on claim of assessee appellant made u/s 10(38) and in confirming the addition made u/s 68 at Rs. 29,64,910/- by the Ld. A.O. treating the entire sale proceeds of listed equity shares as unexplained cash credit which was duly subjected to collection of STT, sold on recognized stock exchange at the prevailing quoted rate after holding the same for more than one year, without properly appreciating the facts of the case, law and supporting documentary evidences in respect of sale and purchase of the impugned LTCG shares furnished on assessment record. In view of the same appellant prays that exemption claim u/s. 10 (38) may kindly be allowed & addition made u/s. 10 (38) may be deleted. 2. That the Ld. C.I.T. (Appeals) has filed in not appreciating that the alleged denial of exemption claim u/s 10(38) and alleged addition made u/s 68 at Rs. 29,64,910/- by the Ld. A.O. was wrong on facts and bad in law since the copy of information and documents received from Investigation Directorate, Kolkata have been relied upon by the Id. A.O. without verification and adjudication thereof and assessee appellant has not been provided such material thus denying the opportunity of cross examination an....
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....ssed by hon'ble jurisdictional ITAT "C" Bench Mumbai in ITA No. 695/Mum/2018 (Page No. 13 to Page No. 21) similar addition made on exactly identical facts as in the case of present appellant in respect of very same scrip, Shree Shaleen Textiles Ltd. has been deleted. ii) Vide Compilation of judgements Part-1 filed before hon'ble Tribunal, in the case of Smt. Krishna Devi & Others by an order dated 15/01/2021 passed the hon'ble High Court of Delhi in ITA 125/2020, 130/2020 & 131/2020 (Page No. 3 to Page No. 12) in para12 onwards has held that no addition can be made merely on the basis of weak financial of alleged scrip not justifying the phenomenal rise in its quoted rate and on another basis of report of Investigation Wings and without further corroboration of allegation and bringing any contrary cogent material on record. iii) In a very recent case of Ziauddin A Siddique by an order dated 4th March, 2022 the hon'ble jurisdictional High Court of Bombay in Income Tax Appeal No. 2012 of 2017 (copy of judgement furnished in the course of hearing) in which case purchase of shares had also taken place in off market deal (please refer to question of law raised by rev....
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....ustries Ltd. was purchased by assessee way back in year 1994 and shown held by assessee in ITR filed by him for earlier assessment years. And because this scrip was categorized by Investigation Wing as Penny Stock, sale proceeds has been added u/s. 68 without bringing any contrary evidence on record which single fact alone goes on to establish that below tax authorities have not applied their mind at all disregarding the holding of the said scrip by assessee for more than 20 years prior to its sale." 10. On the other hand, Ld.DR relied on the orders passed by Ld.CIT(A) and specifically brought to our notice Page No. 5 of the Ld.CIT(A) order and he also submitted that the transactions made by the assessee are non-genuine and further, he submitted that the case law relied by the assessee is distinguishable to the facts of the present case. 11. Considered the rival submissions and material placed on record, we found that the facts in the present case and the facts in M/s. Pratibha S. Mhatre in ITA. No. 695/Mum/2018 dated 11.06.2021 are factually identical and the scrip dealt by these assessee's are also on M/s. Shree Shaleen Textiles Limited and we observe that the assessee has purc....
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....of SRK Industries Ltd were subjected to some charge or encumbrance with certain loan creditors and the said charge on assets were also duly cleared by SRK Industries Ltd subsequently. This is evident from the status report mentioned therein as 'closed'. These facts go to prove beyond doubt that SRK Industries Ltd is an operational company even as on 26.2.2019. 7.3. We find that the ld AO sought to identify the alleged purchasers of shares from the assessee and issued notices u/s 133(6) of the Act to all of them. All the notices sent through speed post returned unserved. Based on this, adverse inference was drawn by the ld AO on the assessee. We find that the ld AR had already submitted that in an online platform of trading of shares in the open market through a registered stock broker, it is not possible for the assessee to even know the name and address of the purchasers when the assessee sells the shares in the open market. In any case, merely because the alleged purchasers list given by the ld AO in his assessment order had not responded to notice u/s 133(6) of the Act, no adverse inference could be drawn on the assessee for the default committed by those alleged purchasers. T....
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....that all the investment decisions of the assessee would be prudent and would be done only after analyzing the entire fundamentals and financials of the investee company. It is in everybody's knowledge, that an investor would try to take calculated risks by investing his money on an unknown scrip based on certain information from friends, relatives, or in some stock market related websites and take a chance. Since the scrip purchased by the assessee was showing considerable growth from the time of purchase, the assessee being a gullible investor continued to hold it for a period of 14 months and later sold it in open market in online platform at prevailing market prices. 7.5. We find that the ld AO had observed that the assessee had traded only in the shares of SRK Industries Ltd. This is factually incorrect statement of the ld AO. Moreover, the ld AO had during the course of examination of the assessee on oath u/s 131 of the Act had even posed a question vide Question No. 24 that assessee had purchased very few shares of well reputed companies during the year like Indus Ind Bank, Crompton Greaves, Larsen and Toubro etc. We find that the ld AO in para 13.4 of his order had observe....
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....e 'Act'), relating to Assessment Year 2014-15. 2. The assessee is an individual and derives income from business, professional capital gains and other sources. The facts of the case and the issues involved in this appeal are brought out by the Assessing Officer at paragraphs 3 & 4 of the assessment order, which is extracted for ready reference:- "3. Brief facts of the case: The assessee has filed his/her return showing income from salary of Rs. 84,000/- & income from other sources of Rs. 6,12,677/-. However, in its computation of income the assessee has computed LTCG of Rs. 5,50,159/- and claimed exemption u/s 10(38) of the I. T. Act. Therefore, all of a sudden earning of such huge exempted income from LTCG requires for examination in detail. Return data analysis of past years shows the following picture:- Assessment Year Income from salary Short Term Capital Gain Income from other Source Gross Total Income Total Income Exempt LTCG 2012-13 0 0 8,63,168 8,63,168 7,43,168 NIL 2013-14 2,40,000 0 3,98,213 6,38,213 5,36,940 NIL 2014-15 0 4,80,227 6,12,677 11,76,904 10,61,900 5,50,158 4. Main issues involved: The main reason for selection....
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....ties below as well as case law cited, I hold as follows:- 6.1. Recently, the Kolkata 'C' Bench of the Tribunal in the case of Navneet Agarwal,-vs. ITO, Ward-35(3), Kolkata; I.T.A. No. 2281/Kol/2017; Assessment Year: 2014-15, while dealing with identical issue of sale of shares decided the issue in favour of the assessee by relying upon a plethora of judgments of various Courts. It held as follows:- "12. The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to "Modus Operandi" of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such....
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....that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law. 15. In our view 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 cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evid....
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....he transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 17. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held: "Adverting to the various probabilities which weighed with the Incometax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The me....
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....ircumstances nothing can be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. "23. A Constitution Bench of this Court in State of M.P. v. Chintaman Sadashiva Vaishampayan AIR 1961 SC 1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors., AIR 1964 SC 708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors.AIR....
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.... law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice." b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: "4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural j....
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....f which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice." 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLB CABLES & CONDUCTORS [ITA No. 78 of 2017] dated 19.06.2018. The High Court held vide Para 4.1: "............we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to....
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....als) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises." d) The BENCH "D" OF KOLKATA ITAT in the case of GAUTAM PINCHA [ITA No. 569/Kol/2017] order dated 15.11.2017 held as under vide Page 12 Para 8.1: "In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered 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 the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations t....
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....account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: "We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale p....
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....tered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A)." h) The Hon'ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: "On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale there....
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....om income tax." The scrips in question were the subject matter of adjudication before this Tribunal. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the case, decided the issue in favour of the assessee. We list some of these decisions:- * Shri Gautam Kumar Pincha vs. ITO, ITA No. 569/Kol/2017, dt. 15/11/2017 * ITO vs. Shri Shaleen khemani, ITA No. 1945/Kol/2014, dt. 18/10/2017 * Mahendra Kumar Baid vs. ACIT, Circle-35; ITA No. 1237/Kol/2017; order dt. 18/08/2017 * Kiran Kothari HUF vs. ITO, ITA No. 443/kol/2017, order dt. 15/11/2017 The Hon'ble Jurisdictional High Court had in the following cases, upheld the claim of the assessee:- * CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 * CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC)dt. 08/05/2017 * CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.04.2009 6.2. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition made u/s 68 of the Act, on acco....
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....se circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6. Similarly, the sale of the said shaers for Rs 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt Ltd and M/s Scorpio Management Consultants Pvt Ltd cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assesse nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s Richmand Securities Pvt Ltd regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s Richmand Securities Pvt Ltd held that the sale transaction was genuine. 7. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount of Rs 1,41,08,484/- represented unexplained investment unde....