TaxTMI 
TaxTMI 
2024 (2) TMI 1573
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....10.11.2014 for AY. 2014-15 declaring total income of Rs. 36,73,690/-. Later on, the case of the assessee was reopened u/s 147 of the Act; and the AO noted during the assessment proceeding that assessee has received Rs. 12,39,44,328/- from sale of shares of M/s. Sunrise and claimed long term capital gain (LTCG) on sale of shares at Rs. 11,89,44,328/- which assessee claimed as exempt u/s 10(38) of the Act. The AO called for the details of the transaction and pursuant to which the assessee brought to AO's notice that he has been allotted 2,50,000 shares of M/s. Santoshima Trade Links Ltd. (hereinafter "M/s. Santoshima") @ Rs. 20/- per share on 10.10.2011 (w.e.f 29.09.2011) for a consideration of Rs. 50,00,000/-. And thereafter, on 22.03.2013, M/s. Santoshima got amalgamated with M/s. Sunrise Asian Ltd. And as per the scheme of amalgamation ordered by the Hon'ble Bombay High Court, the assessee received 2,50,000 shares of M/s. Sunrise, which shares have been sold in the Bombay Stock Exchange (BSE) by assessee during the year under consideration (AY. 2014-15). The total sale consideration was to the tune of Rs. 12,39,44,328/-; and he claimed LTCG of Rs. 11,89,44,328/-. The assessee prod....
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....f the financial of M/s Sunrise and the Investigation report to opine that M/s. Sunrise was a penny stock, which was used by unscrupulous entry operators for providing bogus LTCG to beneficiaries like assessee. The AO noted that M/s. Santoshima was incorporated on 03.03.21992 and its name got changed from M/s Santoshima Lease Finance & Investment (India) Ltd to M/s. Santoshima Tradelinks Ltd on 16.09.2011. And that M/s. Sunrise got incorporated in the year 1981 and it got its present name in the year 1999 and due to non-compliance of clause 41 of listing agreement, the trading in equity shares was suspended by BSE on Feb 17, 2003; which was revoked on 28th Mar, 2011; and thereafter AO discussed about the Financials of M/s. Sunrise from para 9.3 to 9.5 and noted the price-movements of the shares from Rs. 20 to Rs. 50 on 17th Aug, 2011 & Rs. 60/- on 09.09.2011; and thereafter on 16.10.2012 at Rs. 63/- and systematically with in four (4) months went up to Rs. 455/- per share, and finally reached Rs. 615/- per share in March, 2015. Then, the AO discussed about the investigation carried out in the case of entry operators who were searched viz of Shri Anil Agarwal (director of M/s. Comfor....
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....ntrolled M/s. Santoshima as well as M/s. Sunrise and that after amalgamation, shareholder of M/s. Santoshima was allotted shares of M/s. Sunrise at a swap ratio 1:1. The AO reproduced the statement of 348 persons/entities/HUF from page 23-71 of his assessment order. And discussed about 34 exit providers from page 83 to page 88 and assessee's statement was reproduced at page No. 89 -92 of his order. The AO noted that assessee and his relatives had claimed about Rs. 50 cr on LTCG from sale of M/s. Sunrise. Thus AO concluded that the claim of LTCG was nothing but colorable device to launder the black money of assessee to white through systematic, synchronized transaction of purchase/sale of penny-stock of M/s. Sunrise. The AO has discussed (in general) i.e. modus operandi carried out by entry operators for the benefit of beneficiaries who wants to get their unaccounted money laundered as white and that too without paying tax. Thereafter, he noted that the SEBI has passed an order wherein one of the main operator Shri Anil Aggarwal & M/s. Comfort Fincorp and many other broking/Trading firms were said to be indulging in share manipulation; and that many such brokers had accepted that th....
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....d that purchase consideration has been given by assessee through Cheque No. 210738 of Standard Chartered Bank, of Rs. 50,00,000/- which fact is evident from bank-statement found placed at Page No. 46 of PB and application form found placed at page No. 16 of PB. The 2,50,000 shares of M/s. Santoshima has been held in depository/demat of M/s. Stock Holding Corporation of India in the name of assessee from Jan, 2012 onwards, [along with twenty eight (28) other shares, which included shares of blue-chip companies] which fact is evident from perusal of Page No. 42 & 43 of the PB and shows that assessee is a regular investor in scrips. It is further noted (demat statement) from 02.05.2013, pursuant to amalgamation shares of M/s. Sunrise was credited in place of share of M/s. Santoshima i.e. after M/s. Santoshima got amalgamated with M/s. Sunrise, and as per the scheme of amalgamation as ordered by Hon'ble High Court, the assessee received 2,50,000 shares of M/s. Sunrise as per the swap ratio of 1:1 of shares of M/s. Santoshima. And thus, assessee received 2,50,000 shares of M/s. Sunrise in lieu of shares of M/s. Santoshima. Thereafter, the shares were transferred to the Demat Account/dep....
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....ransaction. 4. The main plea of the assessee is that impugned additions are not legally sustainable in the light of the fact that assessee has discharged the burden of proving the genuineness of his claim regarding LTCG on sale of shares of M/s. Sunrise by submitting primary documents to substantiate the claim of LTCG. The assessee in order to prove the transaction which led him to claim the LTCG/exemption u/s 10 (38) of the Act, had proved the events of allotment of shares, dematerialization of the shares, merger of entities ordered by the Hon'ble High Courts order; and thereafter, allotment of shares of M/s. Sunrise and transfer of shares to demat account, and the sale happening through Bombay Stock Exchange Electronic platform after remitting STT. Therefore, according to Ld. AR, the AO could not have drawn adverse view against the LTCG claim made by assessee without first finding any infirmity in the primary documents filed by the assessee, which in this case has been undisputed by AO/Ld. CIT(A) and they have not leveled any allegation/infirmity about the veracity of the relevant documents. In such a scenario, according to Ld. AR, the AO was duty bound to show from the incrim....
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....in the printed form of M/s. Santoshima Lease Finance & Investment Ltd on 29.09.2011. In this regard, the Ld. AR pointed out that on 16.09.2011, the name of company was changed to M/s. Sanntoshima Trade Links Ltd, but the assessee had collected the share application form of M/s. Santoshima Lease & Investment few weeks before the name got changed, and filled it up, and realized only before presenting the application form and therefore, assessee issued cheque of Rs. 50 Lakhs in name of M/s. Santoshima Trade Links Ltd, which fact AO himself agrees at page 15.2 of his order. This fact that assessee on 29.09.2011 had given cheque of Standard Chartered Bank of Rs. 50 Lakhs in the name of M/s. Santoshima Trade Links Ltd itself shows the bonafide action of assessee. The AO further noted that assessee was allotted share certificates on 10.10.2011 but the share certificate bore the name of M/s. Santoshima Lease Finance & Investment Ltd. (refer page 104 PB) which according to AO no standard company would do. In this regard the Ld. AR pointed out that on the share certificate allotted in the name of assessee, distinctive number 6077371-6327370 as well as Folio No. 128 is clearly visible along w....
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....refer page No. 8893 of PB) and STT paid on the sale transaction (refer contract notes placed at page No. 69 to 87 PB); thus sale of shares cannot be held as bogus; and once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares, then, in the absence of any contrary material brought on record, the same cannot be held as bogus transaction merely on the basis of a general investigation report (of Investigation Wing of Kolkata/Mumbai) wherein there is neither any mention of any wrong doing by assessee or of his broker, nor assessee's involvement in modus-operandi has been brought out in the Report of Investigation Wing or SEBI. Unless there is anything incriminating qua assessee or his broker mentioned in the Kolkata/Mumbai Investigation Wing Report and SEBI Report (mentioned at Page No. 97 of assessment order) to be part of modus-operandi to do any illegal acts, the ibid reports cannot be used against the assessee. Further, in this regard, we note that AO at Page No. 38 at Para 9.8 of his order, have also cited the SEBI order suspending trading of shares of M/s. Sunrise and later on revoking the same on 16.08.2011 ....
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....hows that there was regular transaction happening in the stock exchange. We note that there is no evidence/material to show that assessee/broker was a participant in any pre-planned conspiracy to rig the share market and that too to convert his unaccounted money as indicated in the modusoperandi of the Investigation Wing of Department or SEBI, therefore, no adverse view could be drawn in the facts of the instant case. In this context, the Ld. DR drew our attention to the observation of AO at para 15.3 (page 83) of his order wherein AO has noted that the share of M/s. Sunrise sold by assessee have been purchased in large quantities by around different persons/entities/concern (exit provider) and majority of them are among the 347 bogus entities of Mr. Vipul Vidhur Bhatt and other share brokers; and according to Ld. DR, the AO has given the name of exit providers from page 83 to 88 (34 names of exit providers). Therefore, according to Ld. DR, the transaction in question was bogus. In his rebuttal, the Ld. AR of assessee in this regard, pointed out that assessee sold the shares of M/s. Sunrise through recognized broker M/s. Hornic Investments in the electronic platform of BSE, and it ....
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....sulted in assessee's claim of LTCG on sale of share of M/s. Sunrise. Therefore, we do not find any merit in the contention of Ld. DR and observation made by AO at para 15.3 of his order that the buyer of shares [through BSE] from assessee were entities controlled by Shri Vipul Bhat. In such a scenario, without bringing any evidence/material about the identity of exit provider and the nexus of such an entity with assessee/broker, no adverse view could have been taken against the assessee in the given facts and circumstance of the case. 8. Further we note that the AO has relied on the statement of Shri Vipul Bhatt (director of M/s. Sunrise) who admitted that M/s. Santoshima was a paper company and managed by him. According to AO, M/s. Sunrise was also a paper entity providing accommodation entry, which was also controlled by Shri Vipul Bhat. Further, according to AO, he has confronted assessee with the statement of Shri Vipul Bhatt and statement of several brokers (Shri Anil Agarwal/M/s. Comfort Securities) but assessee failed to give any satisfactory response. So according to the AO, these statements confirm that assessee's claim of LTCG is bogus. However, the Ld. AR pointed out ....
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....ion u/s 10(38) of the Act claimed by the assessee was on account of penny stock shares dealt by assessee which was held to be bogus as per the investigation report of Kolkata Income Tax Department. The validity of reopening of assessment is not in challenge before us. The claim of exemption u/s 10(38) of the Act on sale of shares of Sunrise Asian Limited was sought to be examined by the ld. AO in the course of re-assessment proceedings. The assessee submitted that he purchased 5000 shares of Sunrise Asian Ltd on 18/03/2011 @ Rs 20 per share for Rs 1,00,000/-. It is not in dispute that the purchase of these shares were met out of accounted sources of the assessee and shares were duly dematted in the demat account maintained by the assessee. The said shares were held by the assessee for more than 2 years by the assessee and sold for Rs 445 per share in Asst Year 2014-15 for an amount of Rs 22,24,286/-. The assessee furnished the following documents in support of his contentions before the lower authorities :- ................. 4. The ld. AO had relied on the findings of the investigation wing of Kolkata which are outlined in para 6 of his assessment order. The main ....
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....his unaccounted income into exempt long term capital gains by conniving with the so called entry operators, promoters of Sunrise Asian Ltd and brokers who were involved in artificial price rigging of shares. No evidence is brought on record to prove that assessee was directly involved in price manipulation of the shares dealt by him in connivance with the brokers and entry operators. 6.3. It is not in dispute that the assessee had made purchase of shares in offmarket. Now the next issue that arises for our consideration is as to whether an off market purchase of shares could be taken as a ground to declare the entire transaction as sham. In our considered opinion, the transactions could not be treated as sham merely because they are done in off-market, if the assessee had discharged his onus of proving the fact that shares purchased by him were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares are reflected in Demat account and sale of shares are through Demat account. More so, when there is no dispute regarding the purchase price and sale price of shares. Our v....
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....investment in the shares of Sunrise Asian Limited based on market information and had sold the shares in the secondary market in prevailing market prices. It is not the case of the revenue that assessee herein had directly sold the shares in the secondary market with clear knowledge of the name of the person to whom the said shares were sold. In secondary market transactions, the buyer and seller are not supposed to know each other unless it is a case of 'block deals'. Same is the case of the assessee herein. Admittedly, the assessee's case does not fall under the category of 'block deals'. 6.7. Hence the entire addition has been made merely by placing reliance on the Kolkata Investigation Wing report which are more general in nature and does not implicate the assessee herein in any manner whatsoever. We are unable to persuade ourselves to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a parti....
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....een the assessee herein and the directors of Sunrise Asian Limited or any other person named in the assessment order being involved in any price rigging and also the exit provider. This onus is admittedly not discharged by the revenue in the instant case. 6.9. We find that the Co-ordinate Bench of this Tribunal in the case of Mukesh Ratilal Marolia vs Additional CIT reported in 6 SOT 247 (Mum ITAT) dated 15/12/2005 had held that personal knowledge and excitement on events should not lead the ld. AO to a state of affairs where salient evidences are overlooked. When every transaction has been accounted, documented and supported, it would be very difficult to brush aside the contentions of the assessee that he had purchased shares and had sold shares and ultimately purchased a flat utilizing the sale proceeds of those shares and therefore, the co-ordinate bench chose to delete the impugned additions. We find that this tribunal decision was approved by the Hon'ble Jurisdictional High Court in ITA No. 456 of 2007 dated 07/09/2011. It is pertinent to note that the Special Leave Petition preferred by the Revenue against this decision before the Hon'ble Supreme Court has been dism....
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..... The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs. 25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this wa....
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....ional Bombay High Court in the case of Shyam R. Pawar (229 Taxman 256). In the decided case also, the assessee was purchasing and selling the shares through a broker in Mumbai, for purchase of shares of (i) M/s. Bolton Properties Ltd., (ii) M/s Prime Capital and (iii) M/s. Mantra; and he has transacted through the broker at Calcutta and two operators namely Mr. Sushil Purohit and Shri Jagdish Purohit, and one of them was the Director of M/s. Bolton Properties Ltd. who had purportedly admitted to have manipulated the share price of M/s. Bolton Properties Ltd. Mr. Jagdish also reportedly floated several investment companies which were aggressively used in the entire deal with the broker M/s. Prakash Nahata & Co. According to AO, the shares offloaded by the beneficiaries through M/s. Prakash Nahata & Co., were ultimately purchased by the investment companies controlled by Shri Purohit. The name of the assessee figured during the course of the investigation. The AO noted that these entities/ companies, whose shares were traded by the assessee, were not having sufficient business activities justifying the increase in their shares prices. Therefore, the AO concluded that certain operator....
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....showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substanc....
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....,000 as on 1-41999. Thereafter, the assessee has further returned an agricultural income of Rs. 66,000 for the assessment year 2000-01. The amount invested in the purchase of shares in the year ending on 31-3-2000 was Rs. 2,57,020. Again the assessee had a cash balance thereof of Rs. 1,18,771. Therefore, it is, very clear that the investment made by the assessee in shares during the previous periods relevant to the assessment years 1999-2000 and 2000-01 was supported by cash generated out of agricultural income. The above agricultural income have been considered in the respective assessments. Therefore, the contention of the assessing authority that the assessee had no sufficient resourcefulness to make investments in the shares is unfounded. 10.3 Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible.....
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....re transactions. They have confirmed the transactions stated by the assessee that he had with them. These positive statements made before the assessing authority supported the case of the assessee. There is no force in the action of the assessing authority in relying on the negative statements of the other parties whose role during the relevant period was either irrelevant or insignificant. Therefore, in the facts and circumstances of the case, it is, our considered view that certain statements relied on by the assessing authority do not dilute the probative value of the statements given by other persons in favour of the assessee confirming the share transactions entered into by the assessee. 10.6 The above circumstances have made out a clear case in support of the book entries reflecting the purchase and sale of shares and ultimately supporting the money received on sale of shares and finally investing the same in the purchase of flat. The chain of transactions entered into by the assessee have been properly accounted, documented and supported by evidences. 10.7 Therefore, we find that the explanations of the assessee seems to have been rejected by the assessing ....
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....department has out and out upheld the contention of the assessee that he had purchased and sold shares. We find that this solitary evidence collected in the course of survey is sufficient to endorse the bona fides of the share transactions made by the assessee." 12. On further appeal, it is noted that the Hon'ble Bombay High Court in their order in ITA No. 456 of 2007 dated 07-09-2011 has affirmed the order of this Tribunal. 13. The Ld. AR of the appellant has rightly relied on another judgment of the Hon'ble Bombay High Court in the case of CIT Vs Jamna Devi Agarwal (328 ITR 656). In the decided case, also the Revenue had disputed the genuineness of the long-term capital gains derived by the assessee on sale of shares of listed companies for similar reasons as cited in the present case. On appeal, the Hon'ble High Court upheld the decision of this Tribunal deleting the additions by observing as under: "12. From the documents produced before us, which were also in the possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares p....
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....e decision of the Tribunal is based on findings of fact. No substantial question of law arises from the order of the Tribunal. Accordingly, all these appeals are dismissed. No order as to costs." 14. The Ld. AR also brought to our notice the recent judgment rendered by the Hon'ble jurisdictional Bombay High Court in the case of PCIT v. Ziauddin A Siddique (ITA No. 2012 of 2017) dated 04.03.2022 which is found to be relevant in the facts involved in the present case. In the decided case, the issue before the Hon'ble High Court was whether this Tribunal was right in law in deleting the addition made u/s 68 of the ACT in relation to LTCG derived on sale of shares, ignoring the fact that the shares were purchased from offmarket sources and that the sharp rise in prices were not supported by financials. Answering the question raised by the Revenue in the negative, the Hon'ble High Court held that there was a finding of fact that the purchase & sale of shares occured on the platform of stock exchang, upon payment of STT and were supported by documentary ecidences and therefore there was no perversity in the order of this Tribunal. The Court further noted that there was no allegation a....