TaxTMI 
TaxTMI 
2025 (6) TMI 2055
X X X X Extracts X X X X
X X X X Extracts X X X X
.... authorities. From the records, we noticed that additions in this case were made by the AO stating that the transaction of Long-Term Capital Gain ('LTCG') is a manipulated transaction done by the assessee in connivance with the operators to evade tax on his unaccounted income and thereby, relying upon statement made by the operators treated the LTCG according to him of Rs. 89,35,535/- as unexplained income and thus, made total addition u/s. 68 of the Act. 4. Whereas, as per the facts brought on record, the assessee had purchased the shares of M/s. JMD Telefilms Limited from third party. The said company is a SEBI verified scrip and as such shares were purchased from the original purchasers. The amount for the purpose of purchase of the shares were paid by the assessee through banking channel. Ultimately, the shares were also credited in the demat account of the assessee. Thereafter, the assessee through her share broker sold the same at Bombay Stock Exchange on which Security Transaction Tax (STT) and other statutory taxes were also paid. It is well known that when the shares are sold at online platform of stock exchange, the seller of the shares does not know as to whom the sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Shyam R. Pawar, [2015] 54 taxmann.com 108 (Bombay), dated 10.12.2014, b. [2014] 41 taxmann.com 118 (Hyderabad - Trib.) ITAT Hyderabad Bench 'A' Income-tax Officer, Ward 2, Nizamabad v. Smt. Aarti Mittal, 06/11/2013. c. [2017] 77 taxmann.com 260 (Ahmedabad IN THE Trib.) ITAT AHMEDABAD BENCH 'B' Pratik Suryakant Shah v. Income-tax Officer, Ward-10 (3), Ahmedabad, 21/10/2016. d. ACIT vs. Vineet Sureshchandra Agarwal (ITAT Ahmedabad), ITA No. 1442/Ahd/2013 & CO No. 209/Ahd/2013. e. Surya Prakash Toshniwal HUF vs. ITO (ITAT Kolkata) ITA No. 1213/Kol/2016, Assessment Year: 2005-06 f. CIT vs. Mukesh Ratilal Marolia (Bombay High Court) Income Tax Appeal No. 456 OF 2007, dated 07/09/2011. g. Smt. Sunita Jain, V/s. Income Tax Officer, Ward 10(3), Ahmedabad s ITA. Nos: 501 & 502/AHD/2016, Assessment Year: 2008-09. h. ITO-24(3)(1) V/s M/s Arvind Kumar Jain HUF ITA No. 4862/MUM/2014 Assessment Year: 2005-06. i. Kamla Devi S. Doshi V/s. The Income Tax Officer Ward 16(3)(1), ITA No. 1957/Mum/2015, Assessment Year: 2006-07. j. Shri Sunil Prakash V/s. ACIT -15(2), I.T.A. No. 6494/Mum/2014, Assessment....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the course of according relief? 5. Whether on the facts and circumstances of the case and in Law, the Ld. CIT (A) has erred in not appreciating the fact that the findings of the AO were also in harmony with statements of the directors and entry providers etc., in the course of making the addition in the assessment order? 6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the initiating penalty u's 271(1)(c) of the Act without appreciating the fact that proceedings u/s 271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income with a view to concealment of income? 7. The appellant craves leave to amend or alter any ground or add new ground which may be necessary." 2. Fact in brief is that return of income declaring total income of Rs. 1,12,522/- was filed on 28.07.2011. The return was processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny u/s 143(3) of the Act and assessment u/s 143(3) of the Act was completed on 30.03.2014 and total income was determined at Rs. 8,10,990/-. Subsequently, the case was reopened u/s 147 of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 under Section 10(38), in a preplanned 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 www.taxguru.in ITA 125/2020 and connected matters Page 8 of 10 providing entries of bogus LTCG. However, the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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 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 l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as we have noticed from the various orders of the C.I.T(Appeals) that, the shares of some of the companies were purchased by the assessees even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessees had held the shares much prior to 12 months of the sale of the shares." 16.3 Hon'ble Bombay High Court ITA No. 454 of 2018 in the case of Pr. CIT 31, Mumbai vs. Indravadan Jain (HUF), order dated 12.07.2023 wherein Hon'ble High Court held that:- "3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs. 3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs. 155.04/- per share. It was A.O.'s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal. 5. We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises." 16.4 The Hon'ble jurisdictional Bombay High Court has considered an identical issue in case of PCIT vs Ziauddin A Siddique (Income tax appeal No. 2012 of 2017 dated 4th March, 2022) and relevant discussions made by Hon'ble Bombay High Court are extracted below:- "2. 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 ("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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rigging. 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 in piece meal on different date through recognized stock exchange at quoted price. 23. Regarding the statement of Shri Anil Khemka, alleged entry provider, which is reproduced in Assessment Order at Page 8, we note that said statement recorded neither implicate Sun & Shine Worldwide Ltd nor the broker Trade bulls Securities Pvt Ltd and nor the assessee. We note that physical delivery of shares is proved by the memorandum of transfer of shares stated in the share certificate being registered on 30.10.2012. Regarding the escalation of prices of shares of M/s Sun & Shine Worldwide Ltd., that is, the prices have increased by 140 times over the period of 17 months. At this juncture, it is submitted by ld Counsel that prices of shares are determined by the market forces and not solely on the basis of financial statements. 24. We also note that Assessing officer and CIT(A) ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ber appearing in the contract note issued by the share broker. The Bank statement evidencing receipt of funds from the Share Broker has already been furnished in the course of assessment proceedings. The AO have not brought any material indicating that said amount proposed to be taxed has not been received from the Share Broker or the sum received is from the sources other than the sale consideration claimed against sale of shares. In view of these facts, we are of the view that addition should not be made under section 68 of the Act. 26. In the light of the documents and evidences submitted by the assessee, we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that Id. DR could not controvert the facts which are supported with material evidences furnished by the assessee. We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Tribunal, we are not inclined to interfere in this appeal." 16.6 In the case of CIT v/s Lavanya Land Private Limited (2017) 85 taxmann.com 161 (BOM), it was held that when there is no direct and clear evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit providers whatsoever to convert unaccounted money for getting benefit of long term capital gain, no presumption can be drawn to hold otherwise. In the said case the Hon'ble High Court has held that in absence of any tangible material to show that huge cash was transferred from one side to another, addition cannot be sustained. 16.7 The decision of the Hon'ble Delhi High Court in the case of Kinetic Capital Finance Ltd wherein the Hon'ble Court held that once the initial onus is discharged by the assessee regarding the unexplained credit in the books of accounts it is for the Revenue to prove that the credit found in the books of accounts of the assessee is the undisclosed income of the assessee. 16.8 In the case of Kamdhenu Steel & Alloys Ltd 19 taxmann.com 26/206, the Hon'ble Delhi High Court held: "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edible information, the Assessing Officer may validly raise an inference of deemed income under section 69- A. As already held, if the assessee proffers an explanation and discloses all relevant facts within his knowledge, the onus reverts to the revenue to adduce evidence and only thereafter, may an inference be raised, based upon relevant facts, by invoking the deeming provisions of Section 69-A of the Act. It is true that inferences and presumptions are integral to an adjudicatory process but cannot by themselves be raised to the status of substantial evidence or evidence sufficient to raise an inference. A deeming provision, thus, enable he revenue to raise an inference against an assessee on the basis of tangible material and not on mere suspicion, conjectures or perceptions." 17 Judgements of Hon'ble Supreme Courts:- 17.1 The Honourable Supreme Court in the case of Commissioner of Income Tax-7, New Delhi (Petitioner) Vs. M/s Odeon Builders Pvt. Ltd. (Respondent), CIVIL APPEAL NOS. 9604-9605 OF 2018, judgement dated 21/08/2019 has held that: "However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....court on impugned order held that no substantial question of law arose from Tribunal's order. The SC dismissed the SLP against said impugned order. 17.3. Recently, the Hon'ble Supreme Court of India in the case of PCIT vs. Renu Agarwal 153 taxmann.com 579 (SC) dismiss the SLP filed by the Department against the order of High Court which held that the Assessing Officer disallowed exemption claimed by the assessee under Section 10(38) of the Act and made additions, alleging involvement in penny stock which were misused for providing bogus accommodation of Long-Term Capital Gain (in short "LTCG"). However, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in Investigation Wing Report, addition made by Assessing Officer has been rightly deleted. 17.4 In the case of Commissioner of Income Tax vs. Discovery Estates Pvt Ltd reported in 356 ITR 0159, the Hon'ble Delhi High Court referred to the judgement of the Hon'ble Supreme Court in Lal Chand Bhagat Ambica Ram vs. CIT in 37 ITR 288 wherein the Court disapproved the practice of making additions in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessment order. Thus, secondary onus of AO has not been discharged and only on the basis of doubts & surmises, the genuineness of the transactions have been suspected. No material, whatsoever, has been brought on record (in the form of assessment order) by the AO to prove that the transactions of purchases and sales of shares by the Appellant are not genuine. Only on the basis of doubts & suspicions of the AO, the submissions of the Appellant can't be rejected. Therefore, the view taken by the AO that the transactions are not genuine is not sustainable. 20. With such details available on record provided by the appellant during the assessment proceedings as well as appellate proceedings, there was no justification for treating the LTCG as bogus. The Hon'ble Courts have underlined the Importance of taking cognizance of documentary evidences submitted by the appellant, independent enquiries required to be conducted by the AO, cogent material to be brought on record before taking an adverse view against the appellant and making addition u/s 68 of the Act. 21. Judgement of Hon'ble Apex Court in case of NRA Iron & Steel Pvt. Ltd. vs PCIT:- The relevant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. 2. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders. 3. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established." "In the instant case, the Appellant discharged the primary onus as contemplated by Section 68 of the Act regarding nature and source of credit amounts in the bank account of the Appellant by providing contract notes for purchases no sales of shares, De-mat account statement bank statements highlighting the payments for purchases and receipt as sale consideration, broker's ledger account, evidence of payments of STT Balance sheet of the Appellant showing investment made by the AO and submitted that purchases and sales of the shares were ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CG to the Appellant. Therefore, in the instant case, I find that the statement of shri Anil Agrawal is unsubstantiated and irrelevant to justify the impugned addition of LTCG as far as the Appellant is concerned. Further, the AO has not given any cash trail of sale of shares of M/s JMD Telefilms Ltd. and M/s Splash Media & Infra Ltd. by the Appellant to prove that any unaccounted money has been routed in the garb of LTCG. Though, the AO discussed the findings of SEBI, but the AO has nowhere mentioned that SEBI has found involvement of M/s JMD Telefilms Ltd. and M/s Splash Media & Infra Ltd. in price rigging and providing accommodation entries to the beneficiaries. No evidence whatsoever was brought on record by the AO that the alleged entities mentioned in the assessment order were Exit-providers to the sale of shares of M/s JMD Telefilms Ltd. and M/s Splash Media & Infra Ltd. by the Appellant. No link whatsoever between the Appellant and alleged Exit providers could be established by the A0. The AO has not shown with any shred of evidence that the unaccounted cash of Appellant was moved to the account of so-called Exit providers. The AO has neither examined any of the Exi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....getting accommodation entries of LTCG. Unless, the evidences, whatever, in the possession of the AO directly or indirectly linked to the Appellant, it is difficult to implicate the appellant in the alleged scam. This is because, suspicion however strong, cannot take place of evidence as held by the Hon'ble Supreme Court in the case of Umacharan Shaw & Bros vs, CIT(1959) 37 ITR 271(SC). Therefore, in view of the above factual matrix and circumstances in respect of purchases Splash Media & and sales of shares of M/s JMD Telefilms Ltd. and M/s Infra Ltd. by the Appellant and also in view of the decisions of Hon'ble Supreme Courts and various High Courts including binding decisions of the jurisdictional High Courts and a plethora of decisions of various benches of ITATs including binding decision of jurisdictional ITAT, as discussed in foregoing paragraphs, I find that the addition of Rs. 25,14,62,940/- in respect of LTCG claimed on sale of shares of M/s. JMD Telefilms Ltd. and Rs. 1,55,70.963/- in respect of LTCG claimed on sale shares of M/s Splash Media & Infra Ltd. u/s 68 of the IT Act made by the AO is unsustainable and unjustified and therefore, the said addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roceedings u/s 147 of the Act and for obtaining approval were filed. In the copy of form for recording the reasons for initiating the proceedings u/s 147 of the Act the ld. Counsel referred the column No. 6 regarding the quantum of income which has escaped assessment. In this regard, the ld. Counsel contended that the AO has not specified the amount of income which has escaped assessment but only mentioned more than Rs. 1 lakh against the said column No. 6 which is not tenable as per law. The ld. Counsel also referred column No. 8 of the Form requiring to provide information on the "Column 8." The AO is required to record whether the assessment proposed to be made for the first time if the reply is in affirmative then the AO has to state against the said column. The AO had shown in affirmation by saying "yes". The ld. Counsel stated that AO had acted on the basis of wrong facts by saying 'yes' as in the case of the assessee, the assessment was already framed u/s 143(3) of the Act on 30.03.2014 therefore the AO has acted on the basis of incorrect facts that the assessment in the case of the assessee is proposed for the first time which is not valid. The ld. Counsel also referred cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat information relating to accommodation entries availed by the assessee were not disclosed in the original assessment proceedings. He also submitted that reopening of the assessment was based on fresh tangible material and there was no change of opinion made by the AO. 7. Arguments of both the sides have been heard at length on the Rule 27 of the ITAT Rules contested by the assessee and perused the material on record. During the course of appellate proceedings before us in support of application filed by the assessee under Rule 27 of the ITAT Rule the ld. Counsel has pointed out various defects in the reasons recorded as discussed supra in this order. We have perused the Form for recording the reasons for initiating proceedings u/s 147 of the Act and for obtaining approval. It is evident from the reasons recorded that assessing officer has categorically mentioned at column No. 8 of the form for reasons recorded that assessment in the case of the assessee is proposed to be made for the first time on 08.09.2011. In the said Form at column No. 8 there is specific question that "whether assessment is proposed to be made for first time if the reply is in affirmative please st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as under: "During the year, assessee has declared income from Short Term Capital Gain of Rs. 35,695/- & Long Term Capital Gain of Rs. 26,70,49,717/- which is claimed as exempted u/s 10(38) of the I.T. Act 1961 and income from other sources of Rs. 1,51,879/-. Assessee's AR Shri Pradeep Chaudhary filed details of bank accounts, details of investments, details of long term and short term capital gain and exempt income claimed with supporting evidences. All the relevant details have been scrutinized and kept on record." It is evident that the relevant information and detail on the issue was filed before the assessing officer at the time of original assessment proceedings as discussed above. 8. We have also perused the decision of Hon'ble Bombay High Court in the case of PCIT vs Shodiman Investments Pvt. Ltd. as referred by the Ld. Counsel wherein it is held that reopening notice has to be issued by assessing officer on his own satisfaction and not on borrowed satisfaction. We have also perused the decision of Hon'ble Bombay High Court in the case of Survival Technologies Pvt. Ltd., relied upon by the Ld. Counsel wherein the Hon'ble High Court held that AO to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he material facts in the original assessment proceedings. In the light of the facts and findings of the various judicial pronouncements as discussed above in this case, we consider that the reopening of assessment is not valid because of various defects and irregularities evident in the reassessment proceedings initiated in the case of the assessee as demonstrated from the material facts discussed supra in this order. As a result, the objection raised by the assessee (Respondent) under Rule 27 of the Income Tax Appellate Tribunal Rules 1963 is allowed. As a consequence, thereto, the appeal of the Revenue is dismissed and issues raised on merit are left open. 10. In the result, the appeal of the revenue is dismissed." 9. Moreover, it has also been placed on record an information from the Ministry of Corporate Affairs, wherein the said company is active compliant. Even the latest decision of the coordinate bench of ITAT in the case of Mahaveer Kanwarlal Ranka vs. ACIT - 28(2), IT Office, ITA No. 224/Mum/2024, dated 29.11.2024, has dealt with the same scrip and the operative portion of the decision of the same is reproduced hereinbelow: 6. We have heard the partie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 04.03.2022 has also dealt with the identical issue as involved in the instant case, where the AO though considered the documents submitted by the Assessee in support of its claim qua sale and purchase of shares however, not criticized the same and there was no allegation against the Assessee that he has participated in any price rigging of the scrips involved. For ready reference, the decision of the Hon'ble High Court is reproduced herein below: "JUDGEMENT 1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was Justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?" 2. We have considered the impugned order with the assi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies Ltd. which is duly supported by him on the basis of documentary evidence, could not have been dislodged. Accordingly, for the reasons discussed at length by hereinabove, not finding favour with the view taken by the lower authorities, we herein set-aside the orders of the lower authorities qua treating the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee as a bogus transaction and, consequently vacate the addition made by the A.O under Sec. 68 of Rs. 6,06,49,780/-. The Grounds of appeal Nos. 2 & 3 are allowed in terms of our aforesaid observations. 14. As we have held the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd by the assessee as a genuine transaction, therefore, the addition made by the A.O u/s 69C of Rs. 36,38,987/- towards alleged commission which the assessee as per him would have paid for facilitating the bogus transaction of purchase/sale of shares has to meet the same fate and, is resultantly vacated. The Ground of appeal No. 4 is allowed in terms of our aforesaid observations. 15. The assessee has further assailed the levy of interest u/s 234B of the Act. As the levy of interest as p....