TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 1400
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....N. Vora as a lead case. ITA No.329/Ahd/2018 (Sejalben N. Vora) ITA No.329/Ahd/2018 (Sejalben N. Vora) 3. The addition to the tune of Rs.1,65,74,720/- on account of long term capital gains on sale of share is the subject matter before us. 4. The brief facts leading to this case is this that on verification of computation of income it was found that the appellant claimed substantial long term capital gain, exempt under Section 10(38) of the Act on sale of script of M/s. Comfort Fincap Ltd. to the tune of Rs.1,65,74,716/-. The details of sale on purchase of these share were called for and it was found that the said shares were purchased off market and it was preferential allotment. The financials of M/s. Comfort Fincap Ltd. (earlier known as Parasnath Textile Ltd.) alongwith the price movement was examined. In fact, the assessee purchased 55000 shares of the said Parasnath Textile Ltd. at Rs.18/- having face value of Rs.10/- dated 14.03.2011 and the Company allotted share of M/s. Comfort Fincap Ltd. on 04.06.2011. Initially, the said company was not listed on BSE or NSE but subsequently got listed at BSE w.e.f. 25.03.2013 at the price of Rs.387/- per share. The assessee state....
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.... Mehta vs. DCIT in ITA No.509/Ahd/2018 for A.Y. 2014-15, a copy of each of the judgment has been annexed with the paper book filed before us by the assessee. It was further submitted by Ld. Counsel appearing for the assessee that evidences in respect of purchase of shares being the letter of allotment of shares, share certificate, delivery register is duly filed before us by annexing the same in the paper book. Evidences in regard to sale of shares, namely, bank statement, ledger in the books of Comfort Securities, ledger of Comfort Securities in assessee's books, statement of gain/loss on shares, closing stock statement and contract notes are also part of the paper book. It was further contended that the assessee cannot be said to be involved either rigging of share prices or any other sort of wrong doings as alleged by the Revenue. The assessee further submitted before us as follows: "Assuming without admitt ing that script in question was used by accommodation entry providers for providing entries in the form of bogus LTCG, then also LTCG earned by the assessee cannot be treated as the bogus in view of the following vital aspects emanat ing from the orders of lower auth....
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....sh response in relation to the same. ⮚ In this case, AO took contradictory stand i.c, on one hand, AO treated the entire transaction as a sham transaction and on the other hand, AO has allowed cost of acquisition of the shares whi le computing LTCG. Thus, blown hot and cold simultaneously. Such an approach is not permissible in the eye of law * Various trivial objections raised by lower authorities can also not justify the impugned addition in view of the following: ⮚ As regards "off market purchase transaction", - * Off-market transactions are very much permi ssible in the eye of law i.e. the same are not prohibited by the statute. * If some investment is made in shares of company, which at the relevant time was not well known in public domain or through private placement, it does not mean that such investment is not genuine or prearranged unless some adverse material is on record. ⮚ As regards " sharp rise in price" of the scrip in question, - * Sharp rise in the price cannot be sole factor for concluding that prices of shares were rigged in order to generate LTCG. * Share prices are mark....
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.... rel ied upon Contents of report of "Investigation Wing" but assessee was never confronted with such material which has been used behind the back of assessee for making the addition. * If any material i s not conf ronted to an assessee, it would not constitute as an "admissible evidence" and hence, addition made based on such evidence is to be deleted. Reliance is placed on "Kishinchand Chellaram - 125 ITR 713 (SC)". Opportunity of "cross-examination" has not been afforded: * An opportunity of cross-examination has al so not been afforded to the assessee. It is a settled law that in absence of cross-examination, no addition could have been made based on such statement. Reliance is placed on: ⮚ PCIT vs Chartered Speed P. Ltd. - Tax Appeal No.126 & 126 of 2015; ⮚ Andaman Timber Industries vs CCE-(2015) 62 taxmann.com 3 (SC); * Under such facts and circumstances, impugned addition deserves to be deleted." 7. The crux of the submission made by the assessee that the assessee is not having any involvement in rigging of share prices of M/s. Comfort Fincap Ltd. and further the same has already been decided by the Co-ord....
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.... supported by demat account, the contract note, STT and payment received in bank through ECS. Therefore, as per the provision of section 10(38) of the Act, the assessee is eligible for exemption of long term capital gain. 3.3 The allegation that the company M/s Comfort Fincap Ltd was not engaged in major business activity and change of its name of the company suggests that the company was not doing good is devoid of merit. As the M/s Comfort Fincap Ltd formerly known as Parasnath Textile Ltd (PTL) was incorporated as on 12-11-1982 and also got registered with RBI dated 15-09-1998 as NBFC. In the year 2010 PTL acquired by Lahuraka Sales & Services Limited which prompted in change in the name of the company w.e.f. 04-06- 2011. Further on perusal of financial statement of the company, it can be seen that the company has shown income form operation regularly which is in crores. The next allegation, that the share were purchased offline, is again of no adverse inference as there is no prohibition to purchase shares in off market and that does not mean that the transaction is not real. 3.4 The rise in market price of the share especially on stock exchange is not governe....
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....6 Based on the above, the AO concluded that like thousands of the beneficiaries of modus operandi of penny stock, the assessee is also one of the beneficiary. Therefore the amount credited in the bank of account of the assesse needs to be taxed under section 68 of the Act. Further the burden of proof with regard to certain income not taxable lies on the assessee and the assessee failed to prove the same. The AO in conclusion also considered the concept surrounding circumstantial evidences in the light of judgment of Hon'ble Supreme court in case of Sumati Dayal vs CIT (244 ITR 801) and Durga Prasad More (82 ITR 540). 3.7 Thus the AO in view of the above treated the long term capital gain of Rs. 1,15,49,320/-claimed by the assessee as bogus and added to the total income of the assessee as unexplained cash credit under section 68 of the Act. 4. Aggrieved assessee preferred an appeal to the learned CIT(A) and besides reiterating its submission made before the AO contended that the purchase of share in the year of acquisition has been accepted by the Revenue. Therefore, the sale of the same should also be accepted. Likewise, the entry operators or stock broker who pro....
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....and Anii Agarwal is the main behind Comfort Fincap. The appellant could have produced Anil Agarwal before the AO to deny the allegations of. rigging In this share. The appellant did not do so. Thus the appellant failed to discharge the onus on her to prove the presumption of AO wrong. Thus there is no substance in various contentions of the appellant. Further, there are several other peculiarly aspects/facts in respect of transaction by the appellant of this scrip which cast a huge shadow of doubt over the genuineness of this transaction. Some of these facts/aspects are detailed below : (i) The appellant is a resident of Bhavnagar, Gujarat, From here the appellant invests in a Mumbai based company., In the normal course this would not raise any suspicion. But here it is a totally non-descript company with hardly any business activity and any significant performance. So it raises suspicion as to why would the appellant invest a huge amount in such a company. (ii) The timing of the transaction is perfect. The scrip is purchased on 15,03,2011 and sold in October,13 to March, 14 just outside of twelve (12) months to make the appellant eligible to claim the pr....
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....ame as exempt, Hon'bie Supreme Court in Sumati Dayal v, Commissioner of Income-tax [1995] 80 TAXMAN 89 (SC) held as follows ; "4. it is no doubt true that in all cases in which a receipt is sough! to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee Parimisetti Seetharamemma's case (supra) at p. 536. But, in view of section 68 of the Act., where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the natue and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of any income nature. While considering the explanation of the assessee the department cannot, how....
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....aid broke" was incidently the address of the two companies, Both the companies intimated the assessee on 07,04,2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the assessee received the shares of the new company in the ratio of 1:4 of the number of shares of the previous two companies held by the assessee. The assessee sold 2200 shares at an exorbitant rate of R3,486,55 per share on 07,06.2005 and 800 shares on 20.06.7005 at the rate of Rs.485,65. The shares were sold through another broker, viz, Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of India, The assessing officer did not accept the case of the assessee that she was entitled to exemption under Section 10(38) of the Income Tax Act. The assessing officer held that the aforesaid transactions of purchase of" two penny stock shares for Rs.60,000/. the merger of the companies with a new company and the sale of the shares for Rs.11,58,930/- fell within the ambit of adventure in the nature of trade and the assessee had profited by Rs. 13,98,....
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....ogent evidence to explain as to how the shares in an unknown company worth Rs.5/- had jumped to Rs.485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs.5/- of a little known company would jump from Rs.5/- to Rs.485/-. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. The judgments reported in (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (SC) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT(A) Versus Smt.Datta M. Shah) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand. Since no substantial question of law arises in this appeal, the appeal is dismissed with no order as to costs. ....
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....49,320/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph which has been also confirmed by the learned CIT(A). 7.1 The 1st observation of the AO for holding the impugned capital gain as bogus was that the at the time of investment by the assessee the company, was not known in public domain and share were purchased in offline. In this regard firstly we note that the offline purchase of share is not prohibited under the statute. Secondly, if some investment in the shares of a company is made, which at the relevant time was not known in public domain or in private placement does not mean that the investment is not genuine or pre-arranged unless some adverse materials are available on record. 7.2 It was also alleged that the price of the share of M/s Comfort Fincap Ltd. was increased manifolds in a short period of time which was not believed by the authorities below on the principles of preponderance of human probabilities in the given facts and circumstances. The rise in the price of the scripts of a company, having....
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....d in pre-arrange transaction for taking accommodation entries then he should have transferred the entire holding and that too at the highest possible price. 7.4 The AO alleged that the CEO of Comfort Fin Securities and key person of the comfort group in the statement recorded before the DDIT Kolakata admitted to have provided accommodation entry in the scrip of M/s Comfort Fincap Ltd. Similar admission was also made by the other stock broker during the search and survey proceeding conducted by the DDIT Kolkata in the matter of penny stock. However their statements were not provided to the assessee for the rebuttal and cross examination. It was also not brought on record that any of the person whose statement was recorded have taken the name of the assessee or his broker. We also note that there was no allegation against the broker through whom the assessee has purchased and sold the impugned script. What has been adopted by the AO for making the addition was the modus of operandi as highlighted by the investigation wing of Kolkata. To our understanding, the mere modus of operandi cannot the basis of making the addition or treating the capital gain as bogus until and unless....
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.... 3. Shares were sold through stock exchange after the payment of STT. The transactions have been confirmed by brokers. 4. The payment were received through ECS through demat account 5. Inflow of shares are reflected in demat account. Shares are transferred through demat account and buyers do not know the assessee. 6. There is no evidence that the assessee has paid cash to the buyer or the broker or any other entry provider for booking LTCG and share were purchased by the determined buyer. 7. The assessee has no nexus or any relation with company, its director or entry operator. 8. The assessee may have got only incidental benefit of price rise. 9. The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee. 7.8 From the above, 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. 7.9 In our view,....
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....als of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt 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 providing entries of bogus LTCG. However, the reliance pla....
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.... 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. 7.12 Respectfully, following the judgment of Hon'ble Delhi High Court (Supra), we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of M/s Comfort Fincap Ltd. is concern. 7.13 We also note that this Tribunal in the case of Parasben Kasturchand Kochar Mehta Lodha & Co. Chartered Accountant vs. ITO bearing ITA No. 549/Ahd/2008 involving identical facts and circumstances has held as under: "7. We have gone through the relevant rec....
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....e order dated 22.3.2013 of the Hon'ble Mumbai High Court M/s Conart Traders Limited was merged with M/s SAL and in lieu there of 6000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months since purchased on 22.10.2011, assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through a registered broker and all the transactions of sale of shares took place on the recognised stock exchange. Sale consideration was received in the bank account attached with the Demat account. The detail of the persons purchasing the shares is not provided on the portal of SEBI and all the transactions of purchase and sale took place on the portal through registered brokers under the control of SEBI. M/s SAL has not been striked off as a shell company. Trading of shares of M/s SAL was permitted by SEBI. Prime facie, all the conditions provided u/s 10(38) of the Act seems to have been fulfilled by the assessee. 17. As regards the second issue raised is that assessee was not provided opportunity of cross examination, we observe that Ld. A.O has referred to some investigation carried out by the Department ....
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....o succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that "not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected". 24. We accordingly in view of our above discussions, facts and circumstances of the case and respectfully following judicial precedents and the decisions of Coordinate benches squarely applicable on the instant cases, are of the considered view that in the case of the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF), the claim of exempt income u/s 10(3....
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....mstances. The rise in the price of the scripts of a company, having no financial base/business activity/profitability certainly gives rise to doubt about such an increase in the price. However, in the given case, the impugned company was engaged in business activity, and it was regularly showing income from operation, and having registration with RBI as NBFC. Further in our considered view, the sharp rise in the price of script cannot be a sole criterion for reaching to the conclusion that the price was rigged up to generate the long-term capital gain which is exempted under section 10(38) of the Act. Such observation during the assessment proceedings provides a reason to investigate the matter in detail and the same cannot take the place of the evidence. But in the case in hand, there was no enquiry conducted either by the SEBI or the stock exchange with respect to rigging up of the share price of M/s Comfort Fincap Ltd. by the assessee or his broker. As such the assessee carried out the transaction through ICICI Securities Ltd. In this regard the submission of the assessee before the learned CIT(A) reads as under: With regards to the second objection of learned AO that, ....
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....enny stock. However, their statements were not provided to the assessee for the rebuttal and cross examination. It was also not brought on record that any of the person whose statement was recorded has taken the name of the assessee or his broker. We also note that there was no allegation against the broker i.e. ICICI securities through whom the assessee sold the impugned scrip. What has been adopted by the AO for making the addition was the modus of operandi highlighted by the investigation wing of Kolkata. To our understanding, the mere modus of operandi cannot be the basis of making the addition or treating the capital gain as bogus until and unless it is supported by the material documents. On analyzing the facts of the present case, we note that the AO on one hand has alleged that the entire transaction was bogus but on the other hand the AO himself has allowed the cost of acquisition against the sale of shares, meaning thereby, the purchase of the shares has been admitted as genuine. The transactions of purchase and sales go hand in hand. In simple words, a sale is not possible without having the purchases. Thus, once purchases have been admitted as genuine, then correspondin....
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....of the assessee was reopened and finally the exempted long-term capital claimed by the assessee was held as bogus by the AO and added to total income in accordance with provision of section 68 of the Act. In this backdrop the coordinate bench adjudicated the issue in the favor of the assessee by observing as under: "8. We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that the AO has treated the share transaction as bogus on the plea that SEBI has initiated investigation in respect of Ramkrishna Fincap Pvt. Ltd. The AO further stated that investigation revealed that transaction through M/s Basant Periwal and Co. on the floor of stock exchange was more than 83%. We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT(A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale ....
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.... 3. Shares were sold through the stock exchange after the payment of STT. The transactions have been confirmed by brokers. 4. The payments are received through ECS through demat account. 5. Inflow of shares are reflected in demat account. Shares are transferred through demat account and buyer are not known to the assessee. 6. There is no evidence that the assessee has paid cash to the buyer or the broker or any other entry provider for booking LTCG and share were purchased by the determined buyer. 7. The assessee has no nexus or any relation with the company, its director or entry operator. 8. The assessee may have got only incidental benefit of price rise. 9. The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee. 12.8 From the above, 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. ....
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....gh price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometimes we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished, and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good faith. Furthermore, the shares were held by the assessee for almost 3 years. As such the assessee purchased the impugned shares on 15th March 2011 and sold the same during the period 27th January to 6th February 20....
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....ply 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 that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independ....
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.... 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 the assessee nor cross examination was allowed by the ld. A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. 12.14 At this juncture, we also feel pertinent to refer the order of coordinate bench of Indore Tribunal in case of Shivnaray....
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....opportunity was provided to cross examine those persons who accepted to have provided accommodation entries for the bogus LTCG, to the assessee. 18. We observe that all the above stated facts and the issue of genuineness of LTCG and failure of the Ld. A.O to provide opportunity to cross examination by the assessee with regard to the addition made u/s 68 of the Act for the sale consideration received from sale of equity shares of M/s SAL and addition for estimated brokerage expenses has been dealt by the Co-ordinate Bench of Mumbai Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and the same is squarely applicable on the instant appeals. ******************* 23. We therefore in the light of above judgments which are squarely applicable in the issues raised in the instant appeals are of the considered view that the claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharm....
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....l Appeal No. 4228 of 2006. Likewise, the Hon'ble Apex court in the case of Kishinchand Chellaram reported in 125 ITR 713 held that the income tax authorities before relying upon any material are required to provide such material to the assessee for rebuttable. The relevant observation of the Hon'ble Apex Court is extracted as under: It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him. 12.16 In the case on hand, the revenue authorities to hold the transaction carried out by the assessee as sham transaction referred and relied on material and statements of various broker or entry operator recorded or collected by the DDIT Kolkata and Mumbai. However, any material/ stat....