TaxTMI 
TaxTMI 
2022 (10) TMI 1305
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....om sale of listed shares of M/s. Essar (India) Ltd. 4. Brief facts of the case are that, the assessee is an individual who is engaged in the business of software development, mainly in the field of banking, insurance and portfolio management. The assessee had filed his return of income for A.Y. 2014-15 declaring total income of Rs.13,86,480/-. The assessee had inter alia claimed LTCG of Rs.8,69,30,970/- as exempt u/s 10(38) of the Act. Upon examining the working of the long term capital gains, the AO found earning of such huge gain by the assessee to be suspicious. Referring to the report prepared by the Kolkata Investigation Directorate, the AO noted that the Investigation Wing had enquired into the trades conducted in 84 (eighty-four) scrips which included M/s Essar India Ltd. and gave detailed findings indicating that bogus long term capital gain had been accommodated by large number of beneficiaries in these scrips. The AO discussed the modus operandi unearthed by the Investigation Wing at Paras 6.2 to 6.5 of his order. During the pendency of assessment, survey action u/s 133A of the Act was conducted upon the assessee on 09.09.2016 in which the details and documents concern....
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....ination, and his statement was recorded on 13.12.2016. The relevant portion of his statement is reproduced below: "Q.5. Please give the details of movable and Immovable properties held by you and your family members. Ans. I and my family members owned the following movable and immovable properties: - 1. Flat No. 3A-1601, Green Acre, Lokhandwala, Andheri West, Mumbai - 400 053 in the name of Mrs. Tanu Agrawal and G.K.Agrawal, HUF. 2. Office No. E-109, Crystal Plaza, Link Road, Andheri West, Mumbai - 400 053 is in the name of myself. 3. Flat No. 305, Krishna-A, Vishal Nagar, Marve Road, Mith Chowki, Malad West, Mumbai - 400 064. 4. Shop No. 1, 340, Mahalaxmi Coop. Hsg. Soc., S V Road, Kandivali West, Mumbai - 400 067. 5. Shop at Baroda, the detailed address Is not remembered, will provide the details within 2 to 3 days time. 6. We are holding some movable properties which are reflected in our personal Balance Sheet which will be provided in 2 to 3 days time. Q.6. Please state whether you and your wife Mrs. Tanu GirraJ Agrawal are Director/ shareholder / Partner / Karta in any of the companies / firms / H....
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....j Babulal Shah, is a Software Consultant and I know him through one of my friend Mr. Manish Gupta who Is also Software Consultant. Q.15. Do you know M/s. Esaar (India) Ltd., If yes, how and from when? Ans. I know the above company. I was a Director in the said company for shorter period might be in the year 2010-11 but without holding any shares. Mr. Vijay Poddar one of my friend was interested along with me to buy the said company but later on due to some reasons the same has not been materialized. Shri Dheeraj Shah was Interest to buy that company and Mr. Vijay Poddar Introduced Shri Dheeraj Shah to Mr. Ajay Saxena, the old promoters of Esaar (India) Ltd. based in Kolkata. Q.22. I am showing you the statement recorded us. 131 of the I.T. Act, 1961 of Shri Varun Malik, the then BBRM of Axis Bank Ltd., Springfield Branch, Lokhandwala Complex, Andheri West, Mumbai on 07/12/2016. Please go through the said statement and comment upon the same. Ans. Yes, I have gone through the entire statement and found that Mr. Varun Malik has given the wrong statement and I would like to have cross examination. Q.23. Please state on which date and time yo....
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.... Private Limited 28 Rupak Developers Private Limited 29 Saurabh Surendra Jadhav 30 Shallot Tie Up Private Limited 31 Shivkhori Construction Private Limited 32 Shivsathi Mercantile Private Limited 33 Smita Shukla 34 Surface Finance Pvt Ltd 35 Topwell Properties Pvt Ltd 36 Trishuldhari Vinimay Private Ltd 37 Vaishali Dhaval Shah 38 Vijaykant Deviprasad Mishra 39 Vikram Sharma Ans. No, I do not know any of the above parties / persons / companies however they may be the shareholders of the companies wherein we are the directors and there may be any financial transaction. Q.30. l am showing you the Annual Report / Balance Sheet of M/s. Five X Tradecom Limited (Formerly Five X Finance & Investment Limited) and M/s. Axon Ventures Limited (Formerly Axon Finance Limited) for the F.Y. 2013-14, from which It Is seen that M/s. Isairis Trading Pvt. Ltd. Is the shareholder of more than 5% in the above said two companies wherein you and your wife Is director. Please confirm the same. Ans. Yes, after perusing the Annual Report / Balance Sheet of the above two companies, I confirm that Ms. Isairis Tra....
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....sh CHS Zalawad Nagar Ashok Nagar Road Kandivali (East) Mumbai - 400101 in Maharashtra state. Q.10 As the above said SPA is executed in Kolkata, the company's Registered and Corporate address is at Kolkata, all the Sellers are having their addresses in Kolkata, please state why the Stamp Paper Issued by Maharashtra State has been used to enter into said SPA, when the asset / property i.e. shares of the company, sellers belong to Kolkata and the same has been shown to have been executed at Kolkata. Ans. Since I am resident of Mumbai, Maharashtra therefore I arranged purchase of stamp paper from here in my name and executed SPA in Kolkata since the company and the old promoters were from Kolkata West Bengal. Q.11.As per Clause 2.4 of Article 2: i.e. "AGREEMENT TO SEL THE SALE SHARES? of the Said SPA, the Sellers have delivered the following documents to you:- i. The duly executed share transfer deeds in relation to the transfer of the Sale Shares held by it in the Company to the Purchaser; ii. The original respective share certificate(s) evidencing the title of the Sale Shares held by it in the Company; iii. Signed blank dated ....
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....ssee was unable to explain the unusual rise and fall in the share price and was unable to prove that the price fluctuations were natural and based on market forces. According to the AO, it is evident that such share transactions were closed transactions and the fund flow analysis showed that the cash has been routed from various accounts to provide accommodation to assessee. Therefore, taking into consideration, the ITS/AIR data wherein it is shown that sale consideration was Rs.8,88,19,767/- (assessee has shown share consideration of Rs.8,87,46,620/-) and since the assessee could not reconcile these figures, the AO considered the amount reported in ITS/AIR data, i.e. Rs.8,88,19,767/-, as the sale consideration and accordingly denied the benefit of exemption claimed by the assessee u/s 10(38) of the Act in relation to the LTCG of Rs, 8,69,30,970/-. The AO, accordingly, added the sale proceeds of Rs. 8,88,19,767/- (as per AIR information) as unexplained cash credit u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the impugned addition. Being aggrieved by the aforesaid decision of the Ld. CIT(A), the Revenue is now before us. 7. Assa....
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....ed the company's board in the capacity of managing Director (MD) and assumed full managerial control of the company vide resolution passed in Extraordinary General Meeting dated 19.04.2011. The assessee has furnished a copy of the SPA dated 18.03.2011, entered into with Mr. Ajay Saxena, who was one of the promoters, and who also held power of attorney on behalf of all the other promoters, who had also sold their respective stakes to the assessee. It is noted that the assessee had purchased 4,97,430 shares and the payments were evidenced by the bank statements of assessee. The AO is noted to have questioned the assessee on this SPA while recording his statement u/s 131 of the Act and the assessee is noted to have confirmed the same. Having regard to the foregoing facts, we note that the assessee has demonstrated the manner in which he came to know about the company, M/s Essar India Ltd and has explained the rationale for investing in this company. Hence, the Revenue's suspicion as to how did the assessee come to know about this little known scrip is found to have been addressed by the assessee. 9. It was further brought to our notice that these shares were purchased off-market as....
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....ow did the assessee came in contact with these lenders, was a decisive factor to ascertain the genuineness of the transactions in the shares of M/s Essar (India) Ltd. It is not in dispute that these loans were received through banking channel which carried commercial interest rates, and that the assessee had subsequently repaid these loans along with interest. According to AO, the statements of the Directors of these lender companies revealed that these companies were managed and controlled by Shri Girraj K Agarwal. Examination of the statement of Shri Girraj K Agarwal (supra) and also the statements of the directors of the lender companies shows that nowhere has anyone stated that these loans were not genuine or that it represented unaccounted monies of the assessee. Having regard to this factual position, we agree with the Ld. CIT(A) that the AO's action of doubting the genuineness of the source of purchase of shares of M/s Essar (India) Ltd was unjustified. 11. It is noted that the assessee held these shares for more than 2 years and out of the total shareholding of 49,74,300 shares (taking into account the split of shares in the ratio of 10:1 which took place on 21.02.2012),....
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....his unaccounted monies in the guise of sale proceeds of shares of M/s Essar (India) Ltd. Instead, Shri Girraj K Agarwal had affirmed that he had knowledge about this scrip, M/s Essar (India) Ltd and that he and his family members, companies etc. had indeed purchased and sold shares of M/s Essar (India) Ltd. Having examined the contents of his statement, we agree with the Ld. AR that he had not stated anything adverse before the AO which would in any manner suggest that he was involved in wrong-doing or that the shares sold by the assessee were acquired by bogus counter parties or exit providers. Instead, the fact that Shri Girraj K Agarwal had attended the summons and when examined on oath he had not stated anything adverse but confirmed the transactions of the assessee; supports the case of the assessee and substantiates his act of selling shares of M/s Essar (India) Ltd. Hence, the reliance placed by the AO on the statement of Shri Girraj K Agarwal, to disbelieve the shares sold by the assessee during the year, is found to be unjustified. 13. It was further brought to our notice that, the assessee had explained before the lower authorities, the reasons for the surge in price o....
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....nging accommodation entries for LTCG to various others. Just because the loan was taken by the appellant from some companies which were remotely connected to Shri Agarwal it cannot be conclusive evidence to prove that the transactions made by the appellant were bogus. In fact, the statement of the appellant was also recorded u/s 133A on 09 and 10 of September, 2016 by the AO wherein several questions were raised. He was specifically asked the questions relating to the transactions in the shares of Essar (India) Ltd. and he had given all the details of the transaction and confirmed that the said transactions were genuine. The said statement and the answers given by the appellant have not been disproved by the AO. 6.7. The AO also doubted the purchase price paid by the appellant for the shares of Essar (India) Ltd. at Rs.10 per share by SPA, when the market rate of the share was very low. In this case, the appellant wanted to enter company as a promoter by acquiring the promoter quota, which he can buy only from promoters. He took a decision to invest in the said company as he saw an opportunity to expand his business of providing software solutions to NBFCs through a RBI re....
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....hich is named as Penny Stock, by giving the cash, cannot be held to be correct and it is a mere presumption without any direct or circumstantial evidence. 6.9 AO has not established by way of various statements recorded, that appellant was in collusion with said persons, including Giriraj K. Agarwal, in rigging of the shares of Essar (India) Ltd or with the other whom the AO alleged that are exit providers. Appellant was a technical person, proved his credentials, which others - may have used to project the company to sell the shares. From the harmonious reading of the statements recorded by the AO and the affairs of the appellant, it appears that appellant is not connected with the said operators, exit providers etc. AO himself in para 33.1 in his conclusion, extracted above at para 4.1, held that the assessee was ignorant about Penny Stock companies. It is the conclusion of the AO that the assessee had no knowledge about shares traded and fundamentals of penny stock companies. This finding means that the appellant was not involved in rigging of shares, not a party to the pre-arranged, pre meditated scheme for booking abnormal LTCG. The finding of the AO in this ....
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....ny Stock transaction, shares are purchased by unconnected investor at a low price based on information or through private placement and sold after 1 year or lock-in period of 1 year, to book huge profits. Here in this case, the appellant has invested in bulk shares to enter as a promoter of the company, following religiously all regulatory formalities of BSE/SEBI. He held shares 2 to 3 years, he tried to promote the company with business proposals. When he realized, the required breakthrough of business was not happening, he decided to sell part of shares held. He sold only 36.5% shares and still he had 63.5% shares with him as on 31.03.2014. If the intention was only to en-cash the surge price of shares, he could have sold entire holding, but he sold only part of the holding under intimation to regulatory agencies. Therefore, the arguments of the AO related to typical Penny Stock case are not ipso facto applicable in the case of the appellant." 14. Having perused the above findings, we agree with the Ld. CIT(A) that, it was a fact that the assessee himself was a promoter and MD of M/s Essar (India) Ltd, and therefore the AO could not have doubted or questioned as to why did he ....
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....s and therefore qualified as a long term capital asset; f) Reason for rise in the prices of shares of Essar (India) Ltd. was explained before the A.O., g) Copies of brokers' contract note for sale of shares of Essar (India) Ltd. evidencing that the shares were sold through stock brokers registered with SEBI through recognized stock exchange at the prevailing quoted rate on the day of sale and duly subjected to STT, h) Evidence regarding receipt of sale proceeds of shares of Essar (India) Ltd. through normal banking channel, i) Evidence regarding the statutory compliances and disclosures undertaken by the assessee being the promoter MD of M/s Essar (India Ltd) with the SEBI and BSE, both upon purchase and sale of the shares. 16. We further note that, the assessee had been subjected to survey action u/s 133A of the Act and his statement was recorded on oath on 18.10.2016, wherein he had affirmed that the impugned transactions were genuine and supported by documentary evidences. In fact, we note that the assessee was summoned again by the AO and nothing adverse was found in the course of personal examination conducted on 26th and 28th December 20....
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....on of Rs.9,10,025. Similarly the assesse sold 12,500 shares of Mantra Online Ltd. on 25.02.2003. Besides this, Demat account showed the transactions of credit of 20,000 shares of Mantra Online Ltd. on 31.01.2003 and sale of these shares on 20.02.2003 of 7,500 shares and on 22.02.2003 of 12,500 shares. The assessee had also filed bill along with contract notes from the two brokers which gave details of transactions with the exact time of transaction depicting trade time. The Hon'ble Tribunal noted that at no point of time, the department had been able to pin point that there was an accommodation of cash getting converted into regular payment. The revenue, in the said case, had very heavily relied on the discrepancy pointed out by CSE, regarding client code, but at no point of time the revenue was able to prove that the ', sale of the impugned shares was bogus/sham. Even the details received from CSE did not mention that on the specified dates, the transaction did not take place. Besides this evidence, the basic onus that the payee brokers did not have funds to make payments to the assessee or that their existence was suspect or that the transaction was not genuine had not been disch....
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....ointed 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 fact of the record either." 6.18 Thus, I find that on similar set of facts, judicial authorities have already held that addition cannot be made in the hands of the assessee merely on the basis of some investigation carried out by the authorities without pointing out as to whether the assessee had converted his unaccounted cash into exempt capital gains. 6.19 In an identical manner, the addition on account of long term capital gain on sale of shares was deleted by holding it to be a genuine....
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....que, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transaction in M/s Ramkrishna Fincap Pvt. Ltd. on the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT(A) after relying on the various decision of the coordinate bench wherein on similar facts and circumstances issue was decided in favour of the assessee came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT(A). More....
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....od of one year, the share price had risen from Rs.5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share price, then how can it be inferred that such a transaction entered into a sham transaction few years ago and prepared for getting the benefit after few years when share will start rising steeply. In the present case even there was no reason for such suspicion when the shares purchased years before the unusual fluctuation in the share price. Hence, the appeal of department dismissed CIT(A) and ITAT while allowing the appeal held as under; It is also not in dispute that assessee disclosed the shares in their possession in earlier return and statement of accounts and they are duly entered into the books of the accounts of the assessee which was duly proved by the bank statement." 6.22. In CIT v Orchid Industries Ltd (ITA 1433 of 2014) dated 5th July 2017, dealing with the documents filed by the assessee, Hon'ble Bombay High Court observed that the assessee had produced the documents such as PAN, confirmation, bank statement, allotment letters, financial statements. The Balance Sheets showed significant funds t....
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....para 3.1 to 3.4.7 of this order (supra), we are of the considered opinion that, the authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the 'said shares' of M/s. Shukun Construct Ltd., copies of the physical share certificates and her D-MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transactions of buying and selling of the 'said shares' by the respective stock brokers, receipt of sale proceeds through banking channels, etc. As observed earlier in this order, we are of the view that the statement recorded from Shri Niraj Sanghvi on 31.12.2007, the day the order of assessment was passed, would have no evidentiary or corroborative value to be the basis for coming to an adverse view in the case on hand, since it was recorded behind the assessee's back, front a person who was not involved in the purchase of the said shares and also since the assessee was not affor....