TaxTMI 
TaxTMI 
2025 (6) TMI 1109
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....i; that the assessee during the assessment year has made penny stock transactions of Rs. 1,22,25,792/- through which escapement of income was done; that it was thoroughly investigated by the Investigation Wing and also upheld by the various judicial authorities that penny stock scrips are mere vehicles where undisclosed income is invested to earn bogus Long Term Capital Gain (LTCG) or investment which this assessee has used to suppress her income; that by going through the complete information by independent opinion, there is reason to believe that there has been escapement of income in this account; that on the basis of this findings, it was observed that the income to the extent of Rs. 1,22,25,792/- has escaped assessment of the assessment year under consideration and accordingly, the case of the assessee was reopened vide order dated 28.07.2022 and notice u/s 148 of the Act was issued to the assessee on 29.07.2022. Accordingly, the assessee filed e-filed return of income u/s 148 of the Act which is the same as the ITR filed originally by the assessee. 2.1 During the course of assessment proceedings, the AO issued various notices u/s 142(1) of the Act along with questionnaire ....
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....ined the addition made by the AO. 4. Aggrieved, assessee is in appeal before us raising following grounds of appeal :- "1. That the Learned CIT (Appeals) erred in law as well as on fact in making addition of Rs. 1,22,25,792/- of the Income Tax Act by treating the entire capital gains u/s 10(38) of listed shares of M/s. Achal Investments Ltd. as bogus and unexplained money which is based merely n assumptions and which is totally unjustified and baseless. 2. That the Learned CIT (Appeals) erred in law as well as holding the decision of the assessing officer on the issue of disallowance of exemption of u/s 10(38) on long term capital gain on sale of listed equity shares, which is illegal and unjustified. 3. That the Learned CIT (Appeals) erred in law as well as on fact by not giving any opportunity of being heard and cross examining the findings of the Investigation Wing of the department which is formed as the base to proceed with the whole case. 4. That the Learned CIT (Appeals) while passing the order has not considered the various bindings judgments by Honorable Courts and Tribunals as cited by the Appellant during the course of proceedings."....
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.... 2675.5 1865064.5 05.03.2015 DR/229/431386-1 30000 48.85 1465500.00 2132.42 1463367.58 09.03.2015 DR/230/434499-1 35000 49.20 1722142.52 2495.78 1719646.74 10.03.2015 DR/231/438303-1 40000 48.90 1956000.00 2835.97 1953164.03 12.03.2015 DR/233/442359-1 30000 48.90 1467000.00 2134.5 1464865.5 13.03.2015 DR/234/443270-1 40000 48.75 1950000.00 2829.65 1947170.35 19.03.2015 DR/238/454037-1 36000 48.90 1760300.00 2555.37 1757744.63 250000 12188682.52 17659.19 12171023.33 Copy of all the contract notes are enclosed on page no. 75-81 in the paper book for your kind reference. 1.4. Resulting to which the appellant had made a gain of Rs. 1,20,83,456/- after deducting purchase cost of Rs. 87,500/- from sales price Rs. 1,21,71,023/- (Sale net of expenses). Also, the appellant has disclosed the amount of profit under Long Term Capital Gains amounting to Rs. 1,20,83,456/- which is exempt u/s 10(38) of The I.T. Act. The above facts can be verified from the ITR-2 of AY 2015-16 having acknowledgement number 1026....
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.... 1.8. Further, the appellant has sold the shares through Prabhudas Lilladher Pvt Ltd. a listed stock broker under SEBI, and these shares were traded on the recognised stock exchange. The appellant has no control on the rise of price of share in any way. Also, there are multiple examples where the price of shares have increased multiple times in a short duration of time and have given investors unexpected returns. Few examples of such multi fold increase in price in shares are as follows: • Adani Enterprises Ltd. which is a share listed in Nifty 50 (Stock price increased from Rs. 150 in June 2020 to Rs 4,190 in December 2022 which is approximately 28 times of its original price). • Waaree Renewable Technologies Ltd (Stock price increased from Rs. 100 in Feb 2023 to Rs 3037 in April 2024 which is approximately 30 times of its original price). • Oriana Power Ltd. (Stock price increased from Rs. 316 in Nov 2023 to Rs 2984 in June 2024 which is approximately 9 times of its original price) • Trent Ltd. Listed in Nifty 50 (Stock price increased from Rs. 1100 in March 2022 to Rs 8345 in Oct 2024 which is approximately 8 times o....
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....ase that the share price of the aforesaid scrips could be subject matter of artificial price rigging, but there is no evidence brought on record by the Ld. AO that either the assessee or his stock broker was involved in connived transactions in order to earn the exempt long-term capital gains. The entire exercise of reopening and the consequential re-assessment had been made by the Id. AO only out of pure surmise and conjecture. 1.11. The assessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capital gains 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 on different dates through recognized stock exchange at quoted price. Hence, the AO should not doubt on the appellant's intention just because the rise in price of shares. 2. No Cross Examination Granted To The Appellant Despite Being Specifically Asked For: It is trite law that any document or any statement which has been relied by the department is to be confronted to the assessee and the cross- examination of such person whose statement....
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....received from the Investigation Wing. It is apparent from the assessment order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the Assessee. 5. The Appellant Was Not Party To The Alleged Price Rigging: 5.1. Neither SEBI nor any other authority has made any allegation against the Appellant. Even during the investigation carried out against Nagpal Group, the authorities have not found any material showing the involvement of the Appellant. 5.2. If some persons connive to rig the prices of shares of a listed company, that would not mean that every person who sold shares of that listed company on stock exchange, was party to the design of price rigging. Since these shares are listed on the stock exchange, there would always be persons who have sold the shares without being party to the price rigging. The listed shares are available to every owner of shares across the country and it would be unreasonable to proceed on the basis that all such sellers throughout the country have connived to rig the share prices. 5.3. And, unless there is evidence of a particular person's connivance, it cannot be assume....
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....dicial Pronouncements: In addition to all the above submissions and supporting documents, we would further like to place our reliance on the observations of various case laws that have been decided in favour of the appellant and have provided the benefit of exemption under Section 10(38) of IT Act. We are also enclosing judicial pronouncement of Tribunals and High Court which are listed below and the copies of same as are being enclosed in the Paper Book from Page No 89-147: 7.1. Farzad Sheriar Jehani, Mumbai vs Ito, 17(1)(4), Mumbai on 22December, 2023- ITA NO. 2065/MUM/2023 (A.Y. 2014-15) The relevant points that correlate to our case from above judgement have been reproduced as below: "Considered the rival submissions and material placed on record, we observe that the assessee is not the regular investor and had specifically made the investment in the scrip under consideration. It is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares from open market, D-mated the scrips and subsequently sold the same in the stock exchange. It clearly raises several....
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....Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITA NO. 2065/MUM/2023 (A.Y. 2014-15) Farzad Sheriar Jehani ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 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 th....
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....authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." 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 additi....
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....nsactions are carried out on which STT has been paid as per law." 13. The aforesaid direction of the JCIT to the Assessing Officer clearly clinches the issue in favour of the assessee in both the cases. Thus, the addition made by the Assessing Officer by disallowing the Long Term Capital Gain and treating as unexplained money is deleted. 14. In the result, the appeals of both the assessees are allowed." The above case law is attached for your kind reference in the Paper Book from Page no.123-129 7.4. Sarika Bindal, New Delhi vs Ito Ward - 5(4), New Delhi on 13 December, 2023, ITA No.1999/Del/2020 The relevant points that correlate to our case from above judgement have been reproduced as below: "2. As per the grounds of appeal, the assessee has challenged denial of exemption of Long-Term Capital Gain (LTCG) claimed under section 10(38) of the Act and additions of Rs. 51,41,219/- on account of LTCG under section 69A of the Act. The assessee has also challenged addition of Rs. 1,02,824/- on account of unexplained transaction expense under section 69C of the Act. 8.6 In the light of factual matrix and case laws available on....
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.... AO has recorded the statement u/s 131 of the Act. Not satisfied with the statement recorded u/s 131 of the Act, a show-cause notice was issued to the assessee dated 16.12.2016. After considering the submissions of the assessee, the AO found not acceptable to him. The AO proceeded to treat the transactions as penny stock and relying on the investigation report on penny stock from the Investigation Wing, he disallowed the same u/s 68 of the Act to the extent of Rs. 1,28,58,450/-. 11. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrips to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon'ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow....
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....s. In view of these submission, disallowance of Rs. 1,20,83,456/- should be deleted. Prayer: - In view of the above facts, submissions, documents, legal documents and binding judgements it is requested before the Hon'ble Bench of ITAT that the addition of Rs. 1,22,25,792/- u/s 69A of the Income Tax Act made by the AO be deleted and serve the justice." 6. 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, however, assessee could not explain why the assessee has made the investment on this company which has no financial capacity and not justified enough material to make investment in this company. Ld. DR prayed that addition may be sustained on the basis of detailed findings of lower authorities. 7. Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fac....
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....zed 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 substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs." 8. Further, 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: - "8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may no....
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....d; 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 justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the A....
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....vior 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, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual....