TaxTMI 
TaxTMI 
2024 (3) TMI 1469
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....G) on sale of shares of M/s. Alpha Graphics Ltd (hereinafter "M/s. Alpha Graphics"). According to the AO, the assessee had sold 2,00,000 shares of M/s. Alpha Graphics for consideration of Rs. 88,06,950/- and claimed the same as exempt u/s 10(38) of the Act. According to the AO, the transaction was of a penny-stock and therefore the claim of assessee not genuine. Thereafter, the AO referred to the Investigation Report prepared by the Directorate of Investigation, Kolkata (General report) wherein it was reported that an organized racket involving entry operators were facilitating/generating accommodation entries to beneficiaries bogus LTCG which are claimed as exempt from tax. The AO took note of the modus operandi adopted by entry operators to facilitate beneficiaries bogus LTCG (on sale of penny-stock) to convert their undisclosed income disclosed income by bringing it in regular books. According to the AO, by adopting the modus-operandi, beneficiary is facilitated to buy shares of a penny stock; and thereafter the price of the shares of penny-stock companies are rigged and artificially raised through circular trading and thereafter sold through exit providers to whom beneficiaries....
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....o intrinsic value for the shares to claim the huge capital gain. Having said so, he disallowed the LTCG claim of Rs. 88,06,950/- claimed as exempt by the assessee which according to the AO is nothing but the unaccounted money of the assessee. Thus, he made an addition of Rs. 88,06,950/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us. 4. We have heard both the parties and perused the records. We note that the assessee is a director of M/s. Syncom Healthcare Pvt. Ltd (Pharmaceutical Company). The assessee was allotted one Lakh equity shares of M/s. Alpha Graphics at Rs. 10/- per share on 22.06.2011. And thereafter, the shares were sub-divided (face value at Rs. 5 each) on 14.06.2012 and accordingly total shares of assessee increased to two (2) Lakhs shares which fact is evident from perusal of the copy of the share certificate issued by M/s. Alpha Graphics which is found placed as enclosure to Annexure-5 in PB (Registered Folio No. PRF02222, Certificate No. 0101181, Distinctive Nos. 8760001 to 8960000). We note that consideration for allotment/purchase of shares has been through the banki....
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....s broker has carried out the transactions of purchase and sale of shares in connivance with the person/entities which were involved in the alleged manipulation/rigging of prices of shares. The Ld A.R also submitted that the regulator of stock market SEBI has not made alleged any wrongdoing on the part of assessee or his broker against the assessee or its broker. We find that the assessee has proved the following facts to prove its claim of LTCG 1. purchased these shares by paying consideration through banking channels. 2. Two Lakh shares of M/s Alpha Graphics were allotted to the assessee by the said company. 3. dematerialized the shares and kept the same in the Demat account. 4. sold the shares through stock exchange platform 5. received the sale consideration through banking channels on which STT was remitted. Further, the shares have entered and exited the demat account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Further, the AO has not brought on record any material to show that the assessee was part of t....
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....statements of Shri Anil Kedia (director of M/s. Excel Stock Banking) and that of Shri Mayur Jain. And as noted (supra) any way it is not the case of AO that their testimony imputes any wrong doing on the part of assessee or his broker in the LTCG claim from transacting shares of M/s. Alpha Graphics. The AO without brining on record any nexus or connection with the unscrupulous entry operators (black listed by SEBI etc), could not have disallowed the claim of LTCG. In the light of the aforesaid facts and circumstances, we are of the view that by producing the primary documents (supra) before AO, the assessee has discharged his burden to prove the claim of LTCG, and then onus shifted to AO/Ld. CIT(A), who couldn't rebut the same. In such a factual context, the LTCG claim on sale of shares of M/s Alpha Graphics ought to have been allowed. The AO/Ld CIT(A) erred in disallowing the claim and making addition of Rs 88,06,950/-. Therefore, in the facts and circumstance discussed (supra), we are unable to countenance with the impugned action of Ld. CIT(A) to deny the LTCG claim of assessee. 5. The Ld. AR also brought to our notice that Co-ordinate Bench of this Tribunal (Ahmedabad) had a....
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....leading that they were involved in the activity of rigging up the price of the shares. Similarly, the AO has not conducted an enquiry from the SEBI or BSE about the assessee whether he was engaged in the frivolous activities as alleged. 7.2 We also note that the AO has referred to the investigation carried out by the investigation wing of Kolkata wherein it was unearthed that the certain broker or entry provider have accepted that they have used the script of the M/s AGIL to provide bogus exempted long term capital gain to certain class of beneficiaries in consideration of cash. However, there was no information available on record whether the name of the assessee was appearing in the investigation carried out by the investigation wing of Kolkata or any other investigation carried out by the Income Tax Department. It was also not brought any material that those broker or entry provider have taken the name of the assessee or provided their services either to the assessee or assessee broker. 7.3 The alleged scam might have taken place on generating LTCG to avoid the payment of tax. But it has to be established in each case, by the party alleging so, that this assess....
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....cks which gave rise to huge capital gains in a short period, does not mean that the transaction is bogus as all the documents and evidences have been produced. (viii) The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee. 7.7 It is also important to note that the assessee was holding 10 lakh shares M/s AGIL. However, the assessee has sold only part of the holding i.e. 7,60,003 shares. The remaining shares are still with the assessee as investment. Had the assessee been involved in manipulating the prices or purchased with intention to book bogus exempted income, then he would have sold the entire shareholding. Thus the conduct of the assessee suggests that he was not involved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices but it is not so in the case on hand. 7.8 In our view, the income generated by the assessee cannot be held bogus only one the basis of the modus operandi, generalisation, and preponderance of human probabilities.....
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....stify 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 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 ....
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....d having demat account of ICICI Securities Ltd. and he has purchased shares through ICICI Securities Ltd. and money has been paid through banking channel. Copies of bank statement and Demat account have been submitted before the lower authorities. 8. Ld. A.R. also drawn our attention towards the statement of Edelweiss Broking Ltd. through the said company shares were sold and also shown us copy of the Contract Note and all these details were furnished before the lower authorities. The assessee has earned long term capital gain from the sale of companies share i.e. Alpha Graphic India Ltd. and Blazon Marbles. 9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10. Ld. A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, ld. A.R. also cited an order of Co-ordinate Bench in ITA No. 6....
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.... certain operators and brokers devised a scheme to accommodate the unaccounted monies of the assessee in guise of capital gains. The AO accordingly added the capital gains derived by the assessee under Section 68 of the Act. On appeal, the Hon'ble jurisdictional High Court upheld the Tribunal order deleting the addition, by observing as under: "..It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt. Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share price....
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....t find any substance in the contention of Mr. Suresh kumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs." 8. We may also gainfully refer to the decision rendered by this Tribunal in the case of DCIT Vs Mukesh R Marolia (6 SOT 247) (affirmed by the Hon'ble Bombay High Court in their order in ITA No. 456 of 2007 dated 07-09-2011 ) wherein on similar facts and circumstances the addition made by the AO on account of purported bogus LTCG derived on purchase/sale of shares (off-market) was deleted by observing as under: "10. We heard both sides in detail and perused rival contentions in the light of the records of the case and the paper book filed by the assessee. In the return of income filed by the assessee for the year under appeal, the purchase of flat at Colaba for a consideration of Rs. 2,06,72,904 was reflected. The assessee's contribution in the purchase of the flat was @ 70 per cent for which the investment amounted to Rs. 1,44,71,033. The source of investment was, among other things, the sale proceeds of shares of Rs. 1,41,08,48....
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....ee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. 10.4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the asse....
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....s. 10.7 Therefore, we find that the explanations of the assessee seems to have been rejected by the assessing authority more on the ground of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum of Rs. 1,41,08,484 which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a conclusion that the transactions were bogus. But, whatever it may be, an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events, should not lead the Assessing Officer to a state of affairs where salient evidences are over-looked. In the present case, howsoever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concer....
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....take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:- "9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab (P.) Ltd. v. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Th....
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.... Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. 13. The statement of Pradeep Kumar Daga that the transactions with the Haldiram group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On a perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. 14. The Tribunal has further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, in the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the ....
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....e 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 ("STT") 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. 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 questio....
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....same facts wherein the Division Bench has dismissed the appeal filed by the Revenue." 14. We also gainfully refer to the decisions cited by the Ld. AR, rendered by the coordinate Benches of this Tribunal wherein also, on similar facts and circumstances, following the above referred judgments of the jurisdictional High Court, this Tribunal deleted the addition/s made by the AO u/s 68 of the Act in relation to the longterm capital gains derived on these listed shares of TTL. The Ld. AR had brought to our notice that, the coordinate Bench at Delhi in the case of Seema Tayal Vs. ITO (ITA. No. 1132/Del/2018) dated 28.06.2019 was pleased to delete similar addition on account of alleged bogus LTCG made by the AO in relation to sale of shares of TTL by the assessee by holding as under: - "17. That on going through the aforesaid judgment, we find that no question of law was formulated by Hon'ble High Court of Delhi in the said case and there is only dismissal of appeal in limine and the Hon'ble High Court found that the issue involved is a question of fact. Thus, the judgment of the Hon'ble High Court has to be seen if similar facts are permeating in the present appeal also and ....
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....ed behind the back of assessee by DIT (Inv) Kolkata and the statement alone cannot be the conclusive evidence to nail the assessee and hence needs to be excluded for consideration as the said person has not been allowed cross examination by assessee, even though various requests were made by assessee. As such, the transaction of the assessee was duly supported by relevant documentary evidences without there being any rebuttal by lower authorities; the addition made by the Assessing Officer of Rs. 1,93,56,813/- by treating the LTCG as bogus is unsustainable. In view of our above finding, we, therefore, delete the addition of Rs. 1,93, 56,813/-. 20. As we find the transaction of long term capital gains of Rs. 1,93,56,813/- derived by the assessee as genuine and as such, further addition of Rs. 3,87,136/- made by the Assessing Officer on account of alleged commission is consequential and is also liable to be deleted and accordingly, the same is also hereby deleted." 15. The Ld. AR of the appellant has relied on another judgment of the Hon'ble Rajasthan High Court in the case of PCIT Vs Ritu Agarwal Shreeram Bhawan (453 ITR 520) which has been confirmed by the Hon'ble Supre....
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.... same in respondent's income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also ....