TaxTMI 
TaxTMI 
2025 (6) TMI 1109
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 asking for various documents and evidences. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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." 5. At the time of hearing, ld. AR for the assessee briefly submitted the facts of the case and submitted detail....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....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 102630450071221 from the e-filing portal of the Income Tax. Copy of ITR V and ITR form no.2 along with computation of income for the relevant year has been enclosed on page no. 58-74 in the paper book for your kind reference. 1.5. The appellant maintained demat account no.1201130000547356....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reased 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 of its original price) * Diamond Power Ltd. (Stock price increased from Rs. 1.95 in Sept 2022 to Rs 1899.95 in Oct 2024 which is approximately 960 times of its original price) 1.9. Similarly, the appellant had purchased the shares of Achal Investment Ltd. at Rs 3.50 in November 2012 and has sold the shares at Rs. 49.00 (approx.) in March 2015 and the stock price has gai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee 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 has been recorded of these persons is required to be given. In this case, the assessee has not been provided any cross-examination. 3. The whole observation in the order issued by AO is based on preponderance of probability and assumptions: 3.1. It has been directly concluded by AO in his order that the transaction undertaken is bogus and unexplained money is based merely on assumptions and which is totally unjustified and baseless. The whole observation in the order issued by AO is based on preponderance and on the bas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 assumed that he was party to the design/ price rigging. When the Appellant observed the price of the shares rising, without being aware of the reason for increase in the price, the Appellant started selling these shares. Even if the prices would have risen on account of any alleged price rigging by certain persons, such price would be available to every owner of shares including the Appellant for selling without being aware of the price rigging. 6. Appellant is eligible to avail benefit of exemption under Section 10(38): 6.1. "Section 10(38) of the Income Tax Act states that: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elate 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 doubts on the purchase and sales transactions recorded in this case. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as unsuspect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vestor 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 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 unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 record, we see potency in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under s. 69A of the Act is not justified. The Assessing Officer has not provided anything on record to justify additions under section 69C of the Act either. The modus operandi spelt by itself is not a adequate ground to impeach the transactions. The judgment in Udit Kalrarelied upon by revenue was rendered in the facts of that case and is quite distinguishable. In that case, the financial resources of the company [Kappac Pharma Ltd.] was quite meager and incurring consistent losses as opposed to the facts of the present case. Also, there was specific information that assessee was beneficiary of accommodati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nked 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 the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed. 12. In the result, appeal filed by the assessee is allowed. 13. With regard to appeal for AY 2016-17, since the facts are exactly similar to AY 2014-15 our above findings in AY 2014-15 are applicable mutatis mutandis in AY 2016-17. Accordingly, the appeal being ITA No.2528/Del/2022 for AY 2016-17 filed by the assessee is allowed. 14. To sum up : both the appeals filed by the assessee are allowed." The above case law is attached for your kind reference in the Paper Book from Page no.135-147 8. Conclusion:- 8.1. The Learned officer failed to appreciate that the provision of section 10(38) of the Income Tax Act, 1961 are attracted since the Appellant has offered explanation about the nature and source of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 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 other party, subsequently, sold the same in the stock exchange. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the Revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed 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 not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence b....