TaxTMI 
TaxTMI 
2023 (6) TMI 1537
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....16. Consequent thereto, the assessments of the years under consideration were completed under section 143(3) read with section 153A of the Act. The search was conducted on the basis of information received from the Investigation Directorate of Kolkata that all these assessee have declared bogus long term capital gains from purchase and sale of a penny stock named M/s Matra kaushal Enterpries Limited. It is the allegation of the revenue that some people have manipulated the prices of the equity shares of certain companies in order to take it to unrealistic levels of high/low prices, so that the capital gains/capital losses are generated by certain investors to suit their requirements. Hence, the AO took the view that the capital gains/capital losses declared by the assessee herein from sale of equity shares of the above said penny stock is bogus in nature. Accordingly, the AO assessed the sale proceeds of shares declared by the assessee in assessment year 2015-16 as the income of the assessee. 3. He also took the view that these assessee would have incurred commission expenses in procuring bogus capital gains. Accordingly, he estimated commission expenses that would have been inc....
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....on various dates during the year relevant to AY 2015-16 through a broker named M/s Magnum Equity Broking Ltd. During the year under consideration, the assessee sold 4,14,500 shares in May and June, 2014 for a total consideration of Rs. 2,13,91,985/- through stock exchange and computed long term capital gains of Rs. 2,09,77,485/-. As noticed earlier, the AO has assessed the entire sale consideration of Rs. 2.14 crores as income of the assessee. 9. The AO noticed that the search team had questioned Shri Pankaj Shah during the course of search about the capital gains declared by the family members. In the statements, he submitted that all these share dealings were carried out by his father Late Shri Khantilal Ramanlal Shah during his life time. Since he could not answer various questions posed by search team, he admitted that he will withdraw the exemption claimed in respect of long term capital gains in the hands of all the family members and this undertaking was also confirmed by him in the statements taken from him subsequently also. 10. Thereafter, the assessing officer has made post search analysis of transactions, wherein he discussed about the general modus op....
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....t the assessing officer has proposed to assess the capital gains u/s 68 of the Act, but the assessee has proved all the three ingredients with regard to sale of shares/long term capital gains. 12. The AO took the view that the long term capital gain declared by the assessee is bogus for the following reasons:- (a) the assessee, being a prudent business man, did not explain as to why he chose to invest in the shares of companies having weak financials, i.e., the assessee has not shown that he carried out due diligence before buying shares of the above said company. (b) the assessee's claim that the investments were made by his late father is not acceptable, as the assessee was not a minor at the time of investment. (c) the assessee has retracted the admission given at the time of search. (d) though the documents were furnished in support of purchase and sale of shares, yet it was only a colourable device adopted to avail exemption of long term capital gains. (e) the modus operandi followed by accommodation entry providers support the decision of the AO that the long term capital gain declared by the assessee is bogus. (f....
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....any were very weak and hence no prudent business man will invest in this company. Hence, it is beyond human probabilities that the assessee has invested in this company. The Ld D R further submitted that accommodation entry providers and exit providers have confirmed that they were helping in manipulation of prices of this share. Accordingly, the Ld D.R submitted that there was pre-meeting of minds between the assessee, company and operators and this capital gain has been generated through collusion of all. 15. The Ld D.R placed her reliance on the following case laws to contend that the long term capital gains declared by the assessee were bogus and hence the AO has rightly assessed the sale proceeds as income of the assessee u/s 68 of the Act:- (a) JCIT vs. Nitin Kumar Dindayal Didwania (ITA 2092/Mum/2019 and others) (b) PCIT vs. Swati Bajaj (2022)(139 taxmann.com 352)(Cal) (c) Suman Poddar vs. ITO (2019)(112 taxmann.com 330)(SC) (d) Shri Sanjay Kaul vs. ITO (ITA No.1593/Del/2019 dated 7.1.2020) 16. The Ld D.R further submitted that the assessee had agreed to withdraw exemption u/s 10(38) of the Act in the statements taken fro....
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....i.e., no enquiry was conducted by the AO independently in order to show that the findings given in the report of the investigation wing is also applicable to the assessee. Accordingly, he contended that there is no reason to reject the claim for exemption u/s 10(38) of the Act. He further submitted that the exemption u/s 10(38) of the Act is a statutory exemption and hence, even if the assessee has agreed to withdraw the same, it cannot be denied to the assessee under the principle that there is no estoppel against the law. 19. The Ld A.R further submitted that the contention of Ld D.R that the company M/s Matra Kaushal Enterprises Ltd is having weak financials is against the facts. He submitted that the turnover of the above said company stood at Rs.98 crores for the year ending March, 2015. He submitted that the AO has relied upon certain statements given by the operators without putting them to the assessee. He submitted that the assessee is a regular investor in shares and hence the AO was not justified in singling out this share alone on the basis of investigation report. He submitted that there was no SEBI order against the assessee and hence it cannot be said that t....
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....see has not furnished the copies of share certificates, share transfer forms etc. But the fact that the shares were dematerialized and credited to the account of the assessee would prove the fact of purchase of shares. In any case, it is not the case of AO also. Hence the transactions of purchase and sale cannot be doubted with as held by Hon'ble jurisdictional Bombay High Court in the case of CIT vs. Jamnadevi Agarwal (328 ITR 656)(Bom). 22. The case of the AO is that the assessee has agreed to withdraw the exemption claimed u/s 10(38) of the Act before the search officials. In this regard, it is submitted by the assessee before tax authorities as well as before us that he could not explain the details of purchase and sale during the course of search proceedings, since all these transactions were carried out by his father, who had since expired. It was further submitted that the assessee had agreed to withdraw exemption u/s 68 of the Act before the search officials, since he was given impression by the search officials that some wrong was committed by his father and further, he was under the impression that all the relevant documents may not be available. It is submitted ....
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.... long term capital gains. In this process, the AO has ignored the fact that the assessee is a regular investor in shares. He also could not disprove the fact that the purchase and sale of shares of the above said company was carried out by the father of the assessee, who has since expired. 24. We notice that an identical case of allegations that the assessee has availed accommodation entries for bogus capital gains was examined by the Hon'ble jurisdictional Bombay High Court in the case of Shyam Power (supra). The decision rendered by Hon'ble Bombay High Court in the above said case is extracted below:- "3. Mr. Sureshkumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that there was some cash transaction through these suspected brokers, on whom there was an investigation conducted by the D....
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....eport and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we find that Mr. Gopal's contentions are well founded. The Tribunal 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 s....
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....al and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law." 25. We may also refer to another decision rendered by Hon'ble Jurisdictional Bombay High Court in the 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 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 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....
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....tion Wing report, which are more general in nature, cannot be the basis for making addition u/s 68 of the Act, when the investigation wing has not implicated the assessee. Before us, the Ld D.R placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of Suman Poddar (supra). In the case of Shri Yogesh P Thakkar (supra), the Tribunal has considered the above said decision and noticed that the same has been distinguished by Hon'ble Delhi High Court itself in the case of PCIT vs. Krishnadevi (ITA 125/2020 dated 15.01.2021). The relevant observations made by the co-ordinate bench are extracted below:- "5.12. We find that the ld. CIT(A) relied on the decision of Hon'ble Delhi High Court in the case of Suman Poddar vs ITO reported in 112 taxmann.com 329 dated 17/09/2019 where the decision was rendered in favour of the revenue. The Special Leave Petition filed by the assessee before the Hon'ble Supreme Court in this case was dismissed by the Hon'ble Apex Court vide its order dated 22/11/2019. But we find that there is yet another decision of Hon'ble Delhi High Court in the case of PCIT vs Krishna Devi and others in ITA 125/2020 ; 130 & 131/2020 dated 15/01....
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....iding entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre- planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on con....
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....and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed. (emphasis supplied by us)" In the case of Smt Krishna Devi (supra), the Hon'ble Delhi High Court has held that the theory of human behaviour and prepo....
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....ed against the assessee, need not be followed by this Court in the peculiar facts and circumstances of the instant case." Hence the decision rendered by the jurisdictional High Court is required to be preferred in the instant case also. 28. In the instant case, even though the AO has initially stated that he is rejecting the exemption claimed u/s 10(38) of the Act, yet the AO has assessed entire sale proceeds received on sale of shares ad income of the assessee, meaning thereby he has made addition u/s 68 of the Income tax Act. The responsibility placed upon the assessee u/s 68 of the Act is different, i.e., the initial burden to prove the cash credits is placed upon the shoulders of the assessee. In order to discharge the said burden, the assessee has to prove three main ingredients, viz., the identity of the creditor, credit worthiness of the creditor and genuineness of transactions. If the assessee proves all the three main ingredients, then the burden to disprove them would shift to the shoulders of the assessing officer. If the AO fails to disprove the three main ingredients proved by the assessee, then the assessing officer is not entitled to make addition u....