TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 1469
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....d (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 undisclosed money is given in cash and they b....
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....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 banking channel [viz by cheque No. 556207 dated 22nd ....
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....chase 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 the group/racket which were involved in the modus-operandi/manipulation of prices of s....
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.... 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 an occasion to examine the LTCG claim of an assesse on sale of share of M/s. Alpha Graph....
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.... 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 assessee in question was part of this arrangement. The chain of events and the live link of the assessee's action that he....
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.... 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. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrange....
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....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 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....
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....awn 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. 62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. vs. 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 th....
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.... 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 prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we find that Mr. Gopal's contentions are well founded. The Tribunal....
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....se 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. 1,41,08,484. This amount has been questioned by the revenue authorities. 10.1 The assessee has purchased the shares of four companies viz., Allan Industrial Gases Ltd., Mobile Telecom, Rashee Agrotech and Centil Agrotech, during the previous years relevant to the assessment years 19992000 and 2000-01. The books of account maintained by the asse....
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....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 assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee. 10.5 The next set of evidences relied on by the assessing authority are the statements obtained from various parties. When certain persons like Radha Ashok and Sandeep D. Shah made negative statements against the assessee, persons like Satish Mandovara....
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.... 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 concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimately he had purchased a flat utilizing the sale proceeds of those shares. 10.8 For a moment, even if all the above evidences are ignored, one cannot overlook the pressure of th....
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....ged 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. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee." 3. Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income-tax authorities and the Trib....
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....nce, 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 Tribunal. 15. Reliance placed by the counsel for the Revenue on the decision of the apex court in the case of Sumati Dayal [1995] 214 ITR 801 is wholly misplaced. In that case, the assessee therein had claimed income from horse races and the finding of fact recorded was that the assessee therein had not participated in races, but purchased winning tickets after the race with the unaccounted money. In the present case, the documentary evidence clearly show....
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....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." 12. It is noted that similar questions were also put up for consideration before the Hon'ble Rajasthan High Court in the case of Pr.CIT Vs Gaurav Bagaria (453 ITR 513) which read as follows :- I. ''Whether on the facts and in the circumstances of the case, the Learned ITAT was justified in deleting the addition of Rs. 7593444/- made on account of unexplained credit u/s 68 of the Act when the assessee was unable to justify equity trading by picking the shares of specific companie....
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....t 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 if there is difference on facts, then the judgment cannot be applied. In the judgment of Hon'ble Apex Court in Kunhayyammed vs State of Kerala reported in 245 ITR 360 and also in CIT vs. Rashtradoot (HUF) reported in 412 ITR 17, the Hon'ble Apex Court have held that if the High Court has not admitted the question of law, and has dismissed the appeal, then it is a case of dismissal in liminie. Even on merits and facts, the judgment of Udit Kalra vs ITO (supra) is distinguishable as in that case the company was into consistent losses, whereas, the s....
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....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 Supreme Court as the Civil Appeal No 9111 of 2022 by order dated 24.04.2023 of the Department has been dismissed by the Apex Court. In the decided case, the Hon'ble High Court has upheld the order of the Tribunal allowing the LTCG claim/exemption u/s 10(38) of the Act on sale of scrip of M/s Sunrise Asian Limited. The observations of the Hon'ble Court are as under "On going through the contents of the order of learned ITAT dated 18.11.2020, it is established that before rendering the judgment the learned ITAT has considered entire facts of the case, and has given a categor....
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....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 issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were pu....