TaxTMI 
TaxTMI 
2025 (5) TMI 1170
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....h in the books of accounts and to avoid paying due taxes on the income. Assessing Officer observed that during the year under consideration, the assessee has sold shares of Global Capital Markets Ltd. and declared the income from sale of shares under the head "Long Term Capital Gain from transactions on which STT is paid" i.e. exempt income u/s 10 (38) of the Income-tax Act, 1961 (for short (the Act'). He observed that as per information, the company i.e. global Capital Markets Ltd. fits into the pattern of a penny stock company. Assessing Officer after recording the reason and taking the prior approval issued notice u/s 148. In response, the assessee e-filed its return of income for AY 2011-12 on 05.05.2018 declaring total income at Rs. 4,52,000/-. Further, Assessing Officer issued notices u/s 143(2) of the Act and provided the copy of reasons recorded to the assessee. In response, assessee raised various objections against the reasons recorded vide letter dated 02.11.2018 and the Assessing Officer disposed off the objections raised by the assessee vide order dated 01.11.2018. 3. Assessing Officer further asked for details and documentary evidences regarding LTCG vide notice u/....
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....submissions. After considering the detailed submissions, ld. CIT (A) sustained the addition made by the AO. 7. Aggrieved, assessee is in appeal before us raising following grounds of appeal :- "1. That on the facts and circumstances of the case and in law, the impugned order passed by the Assessing Officer (" AO") u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 ("the Act") and upheld by the Ld. National Faceless Appeal Centre Delhi ("NFAC") determining the assessed income at Rs. 21,77,000/- is arbitrary, bad in law and liable to be quashed. 2. That on the facts and circumstances of the case and in law, the AO has solely relied upon the information received from the DDIT(Inv.), Unit-6(3), New Delhi without any independent application of mind resulting in borrowed satisfaction contrary to settled law and therefore rendering the impugned proceedings u/s 147 r.w.s 143(3) of the Act null and void on account of patent jurisdictional error. 3. That on the facts and circumstances of the case and in law, the Principal Commissioner of Income Tax/ specified authority failed to adhere to the provisions of Section 151 of the Act and proceeded in a mechanical manne....
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....to establish any involvement of unaccounted money qua the Appellant and has erred in merely proceeding on the basis of mere conjectures and surmises contrary to settled law that suspicion cannot take place of proof making the impugned additions unwarranted and liable to be quashed. 12. That on the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings u/s 271(1)(c) r.w.s 274 of the Act despite non-satisfaction of mandatory statutory ingredients and the legal unsustainability of the impugned addition." 8 At the time of hearing, ld. AR for the assessee submitted detailed written submissions, which is reproduced below for the sake of brevity :- "A. Statutory ingredients of Section 68 not satisfied-Absence of jurisdictional facts; 10. It is submitted to lawfully impose the impugned addition u/s. 68 of the Act, the statutory ingredients thereunder must be satisfied, provided as follows: "Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him ....
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....decided on 15 January, 2021 whereby in near identical facts and circumstances, the Hon'ble High Court has held in favour of the concerned Assessee in the following manner: "11. On a perusal of the record, it is easily discernible that in the instant case, the AD had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent 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 AD that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38....
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.... 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 provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 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." (Emphasis Supplied) 14. That it is also an undisputed fact that no such books were (required to be) maintained by the Appellant and that in absence of such jurisdictional requirement, this Hon'ble Tribunal in the case of Babbal Bhatia v. ITO, ITA Nos. 5430 & 5432/DEI/2011, decided on 08.06.2018....
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....er/addition imposes vicarious liability against the Appellant despite the above undisputed facts and no provision under the Act allowing the same. That in such circumstances, no adverse inference can be drawn against the Appellant as it is settled law that there can be no attribution of vicarious liability against a party for the allegations against some other third party unless expressly provided in law vide Religare Finvest Ltd. v. State (NCT of Delhi), (2024) 1 Hon'ble Supreme Court 797 (Para 16 & Para 37) and Sunil Bharti Mittal v Central Bureau of Investigation (2015) 4 see 609 (Para 45). C. Impugned additions non-est and perverse as Appellant is a bonafide investor, entire transactions done via banking channel, de-mat account and through recognized stock exchange 20. That the Appellant had duly produced all documentary evidence before the Ld. AO regarding the source of investment, the evidence of purchase and sale of shares that establish the bona fide nature of the transactions. It is submitted that the Ld. AO mechanically and without any basis, rejected the documentary evidence furnished by the Appellant. 21. In this regard, reliance is placed....
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....iauddin A Siddique INCOME TAX APPEAL NO. 2012 OF 2017, whereby it has been held as under: "We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal 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 ("SIT") 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." (Emphasis Supplied) Similarly, decision has also been held by the Hon'ble Delhi ITAT in favour of the Assessee in the case of Meenu Gael v. ITO [ITA No. 6235/Del/2017] as under: "All the transaction were made through account payee cheque / banking....
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...." (Emphasis Supplied) E. Addition cannot be made on mere suspicion, impugned order passed on mere conjecture and guesswork. 24. That the present impugned order passed by the Ld. CIT(A), erroneously upholds the additions made by the Ld. AO vide Para 26.1, 26.2, 26.4, 28 & 31 of the Assessment order (PIs See: Pg. 38, 39 & 41/Appeal paperbook), strictly on the basis of suspicions and guesswork. It is submitted that not an iota of material/ evidence against the Appellant is cited in the impugned order. 25. That the impugned order is ex-facie erroneous and untenable insofar as there is no information available with the Respondent-Assessing Officer, apart from unsubstantiated suspicion and conjectures in direct contravention to settled law vide Transworld International Inc. v. Joint: Commissioner of Income tax, 2004 SCC OnLine Del 729. 26. It is further submitted that "reason to suspect" does not satisfy the jurisdictional threshold of "reason to believe" (to lawfully initiate proceedings under Section 147/148 of the Act) vide Synfonia Tradelinks Pvt. Ltd. v. Income Tax Officer, Ward-22 (4) in W.P.(C) No. 12544/2018 (Delhi). 27. That hence,....
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....e beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without there being any material against the assessee. 11 Hon'ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - "11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent 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 comme....
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....s." 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 provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 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 I....