TaxTMI 
TaxTMI 
2026 (5) TMI 1853
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....ife Line Drugs & Pharma Ltd. ("LDPL") and claimed Long Term Capital Gain ("LTCG") of INR 1,56,86,090/- as exempt income u/s 10(38) of the Act however, as per the information available with the AO, the capital gain was bogus. The assessee had not filed any return of income in response to the notice issued u/s 148 on 07.03.2022. The assessee has filed her ITR on 07.03.2022 declaring total income of INR 6,29,590/ -. The AO observed that the assessee has neither filed any return of income u/s 139(1) of the Act nor within the time provided in the notice issued u/s 148 of the Act nor in response to notice issued u/s 142(1) and only at the fag-end of the proceedings, had filed the return of income on 07.03.2022 therefore, the return of income so filed was not accepted by the AO and the assessment was completed by making an addition of INR 1,56,86,090/- treating the LTCG as unexplained money of the assessee u/s 69A of the Act. 3. Against the said order, assessee filed an appeal before Ld. CIT (A) who vide order dated 03.06.2024, partly allowed the appeal of the assessee accepting the detailed written submissions filed by the assessee. Ld. CIT (A) has reproduced the submissions filed by ....
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....edgment of e-filing portal and its Annexures are placed at pages 150 to 170 of the Paper Book. As submitted above, the said Annexure contained copy of the DEMAT account statement of the assessee, copy of purchase bill, copy of share certificate, copy of the sale bills and the bank statements of the assessee. Ld. AR submits that no additional evidence whatsoever was filed before Ld. CIT (A) and therefore, there is no occasion with ld. CIT (A) to obtain Remand Report from the AO. Ld.AR further submits that the assessee has discharged the burden casted upon to it of explaining each and every aspect of the transaction of sale of shares to prove the genuineness of the LTCG declared, which facts were duly appreciated by ld. CIT (A) and deleted the additions. He further submits that the opportunity of cross- examination of the alleged entry operator whose statements were relied upon by the AO for alleging the LTCG as bogus, has not been granted to the assessee. Ld.AR further submits that under identical circumstances, Long Term Capital Gain earned from the sale of shares of M/s LDPL has been held as genuine in the case of Shri Anoop Jain vs ACIT in ITA No. 6703/2019. He therefore, re....
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....scharged his primary onus, however assessing officer had not discharged the heavy onus cast upon him since had not brought any cogent material and credible evidence to disprove the transaction. There is not an iota of evidence and/or contrary material brought on record by assessing officer to disprove the bonafide claim of the appellant. 5.2.8 The appellant has further stated that the AO violated all the principles of natural justice and passed the assessment order in a hurry without taking cognizance of the details filed by the appellant which prove that all the transactions were genuine and bonafide. 5.2.9 The appellant has further placed reliance on the following judicial pronouncements regarding the cardinal principle of natural justice: i. Vodafone India Ltd. vs. UOI [2013] 40 Taxmann.com 545 (Bom.) ii. Dipak Natwarlal Dholakiya vs. Additional/Joint/Deputy/Assistant Commissioner of Income-tax [2013] 149 Taxmann.com 151 (Gujarat) iii. Idea Cellular Ltd. vs. CIT [2016] 65 Taxmann.com 116 (Pune - Trib.) iv. Dineshkumar Chhaganbhai Nandani Vs ITO [R/Special Civil Application No. 7864 @ of 2022 dated June 19, 2023], v. ....
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.... iv. Commissioner of Income Tax, Central V. Rama Educational Society [2018] 99 taxmann.com 282 (SC) 5.2.13 The appellant has submitted that the AO has not issued a notice u/s 143(2) and therefore the assessment order is invalid and deserves to be quashed. She has placed reliance on the following decisions: i. Geno Pharmaceuticals Ltd Vs Assistant Commissioner of Income-tax, Circle 2(1), [2013] 32 taxmann.com 162 (Bombay) ii. Major Suresh Yadav Vs Income-tax Officer [2023] 153 taxmann.com 159 (Delhi - Trib.) iii. Hon'ble Madras High Court in case of Amec Foster Wheeler Iberia SLU - India Project Office Vs. Deputy Commissioner of Income-tax, [2023] 148 taxmann.com 124 (Madras) iv. S.G. Portfolio (P.) Ltd Vs. Principal Commissioner of Income-tax, [2023] 151 taxmann.com 307 (Delhi), 5.2.14 The appellant has further submitted that the company M/s Lifeline Drug & Pharma Ltd is not a paper company or a shell company as in F.Y. 2013-14 the revenue from operations was at Rs. 40,85,02,313/ -. Further the appellant has submitted that the Hon'ble ITAT Delhi A Bench in the case of Anoop Jain Vs ACIT ITA No. 6703/DEL/2019 in....
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....ax [2020] 116 taxmann.com 382 (Allahabad) has held on the issue of the onus of the assessing officer while making addition u/s 68: "27. Section 68 requires the Assessing Officer to satisfy itself of the source of the credit and if during the course of enquiry undertaken, the entries are found to be not genuine then the sum represented by such credit entry is to be added as income of the assessee. The satisfaction of the Assessing Officer thus forms the basis for invocation of the provisions of section 68. The satisfaction in this regard, however, must not be illusory or imaginary but is required to be based on the facts and the evidence and on the basis of a proper enquiry of the material before the Assessing Officer. The enquiry envisaged under the provision is to be reasonable and just. 28. Under section 68, the onus is on the assessee to offer explanation where any sum is found credited in the books of account and where the assessee fails to prove to the satisfaction of the Assessing Officer, the source and nature of the amount of cash credits an inference may be drawn that the credit entries represent income taxable in the hands of the assessee. This does not ....
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....res were dematerialized and credited in the assessee's account maintained with depositary participant i.e. HDFC on 16.10.2006. The dividend amount of ' 1,50,000/- had been received with regard to aforementioned holding of shares on 23.10.2007. The said amount had been disclosed by the assessee in his return of income and exemption was claimed accordingly. Thus, the addition being without any logical basis was directed to be deleted. The relevant findings recorded by the CIT (A) in this regard read thus :- "I have considered the facts of the case, the basis of addition made by the Assessing Officer, the arguments of the AR during 3 of 7 the assessment as well as appellate proceedings and the comments of the Assessing Officer in the remand report. It is seen that the impugned purchase of shares allegedly effected in the financial year 2006-07 for an amount of ' 11 lakhs and the said shares had been physically transferred in favour of the appellant in the books of the listed company namely GeeFCee Finance Limited. Further the said shares got dematerialized and were, credited in the assessee's account maintained with depository participant i.e. HDFC on 16.10.20....
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.... shares and said shares had been sold through National Stock Exchange. It is also seen that the Assessing Officer while working out the addition has allowed indexation on the cost of purchase of shares till the date of sale and has in fact worked out the capital gain only to make the impugned addition. I am of the view that there is no evidence on record, gathering during the course of search proceedings or during the course of post search investigation or assessment proceedings to hold the view that the entire transaction of purchase/sale of shares effected over a period of two years was a sham transaction. The addition being without any logical basis is directed to be deleted." 5. On appeal by the revenue, the Tribunal upheld the findings recorded by the CIT(A). It was categorically recorded by the Tribunal that as noticed by the CIT(A), in the remand report the Assessing Officer was not able to contradict the facts regarding purchase of shares and sale thereof. Further, it was recorded that the assessee had sold shares through MTL shares and Stock Broker limited which is a SEBI registered Stock Broker. The payment for sale of shares was received through banking channels....
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....ng no merit in the appeal, the same is hereby dismissed." 5.2.21 In the case of Pr. CIT-3 Kolkata vs. Hitesh Rungta Properties Pvt Ltd [2017] 83 taxmann.com 106 (Calcutta), the Hon'ble High Court of Calcutta has held: "11. On the last point, the Tribunal held that the Assessing Officer had not brought on records any material to show that the transactions in shares of the company involved were false or fictitious. It is finding of the assessing officer that the scrips of this company was executed by a broker through cross deals and the broker was suspended for some time. It is assessee's contention on the other that even though there are allegations against the broker, but for that reason alone the assessee cannot be held liable. On this point the Tribunal held - "As a matter of fact the AO doubted the integrity of the broker or the manner in which the broker operation as per the statement of one of the directors of the broker firm and also AO observed that assessee had not furnished any explanation in respect of the intention of showing trading of shares only in three penny stocks. AO relied the loss of Rs. 25,30, 396/- only on the basis of i....
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....with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants' account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal wa....
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....luenced and carried away by the directions/instructions issued by the Dy. Director of Inspection (Inv.) as contained in his appraisal report dt. 14th November, 1995 and therefore the impugned assessments are vitiated in law being illegal and liable to be struck down. We find considerable force and merit in such an argument advanced by Sri Santhana Krishnan. 26. The enquiries by the AO for making the assessment of income are quasi-judicial proceedings and the act of framing the assessment is quasi-judicial act. It is a trite law that a judicial or quasi-judicial authority should act independently and that there shall not be any interference, nor any advice, opinion, instructions, directions can be given to any IT authority in such proceedings, etc., by any stranger/outsider even if such stranger/outsider is higher or highest authority in the hierarchy of the Department. If an order is passed or a decision is rendered by an IT authority in such quasi-judicial proceeding at the behest of or upon the directions or instructions, of any superior officer or authority then such an order/decision is illegal and a nullity in law because it shall be deemed in law that such an order/d....
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....ial or quasi-judicial functions." (iii) The Hon'ble Supreme Court again in the case of Sirpur Paper Mill Ltd. vs. CWT (1970) 77 ITR 6 (SC) have clearly stated as under : "The power conferred by s. 25 is not administrative : it is quasi-judicial. The expression "may make such inquiry and pass such order thereon" does not confer any absolute discretion on the CIT. In exercise of the power the CIT must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice : he, cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Sec. 13 of the WT Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of officers of the Department in matters administrative but not quasi-judicial." 27. In the instant cases there is no denial that the DDI had given directions/instructions to the AO in his appraisal ....
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.... 5.2.24 In a recent decision dated 12.07.2023 of the Hon'ble High Court of Bombay in the case of PCIT vs Indravadan Jain, HUF ITA No. 454 of 2018 it has been held: "2. It was the case of Revenue before the ITAT that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Act. 3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs. 3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs. 155.04/- per share. It was A.O.'s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities a....
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....r passed by the ITAT and no substantial questions of law as proposed in the appeal arises. 6. Appeal dismissed." 5.2.25 The Hon'ble ITAT Cuttack Bench in the case of ITO vs Bimala Devi Singhania [2023] 146 taxmann.com 449 has held: "16. Other than the statement recorded from Shri Radheshyam Singhania, the AO has not relied upon any other evidence, however, the assessee has produced substantial evidence in the form of the first allotment of the shares in AAR Infrastructure Ltd., the merger of AAR Infrastructure with CCL International Ltd., the sale of shares through ISE Security & Services Ltd., a SEBI authorised broker, the proof of payment of STT as also the fact that these shares were in the Demat form. Other than the statement of the assessee showing that he is willing to pay tax on the transaction, there is no shred of evidence available with the AO to presume that the transaction done by the assessee in the purchase of AAR Infrastructure shares, merger of AAR Infrastructure with CCL International Ltd. shares was a colourable device or an attempt at evading tax by using the unscrupulous methods of tax planning bordering on side of tax evasion. ....
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....hares at the BSE supported by transactions recorded in the Bank including the accounts of the brokers etc. have all been seen and considered. These are not faulted with. In the said factual matrix on considering the queries raised and responded to by the assessee before the AO and again before the Id. PCIT we find that the suspicions of the Revenue that the assessee has indulged in participating in scheme of claiming bogus LTCG claim in order to evade tax is misplaced. In order to exercise the powers u/s 263, the order passed by the AO has to be shown to be erroneous and prejudicial to the interests of the Revenue. No case law need to be referred to for the said well settled legal proposition. In the facts of the present case, the suspicion harboured by the Revenue have not been translated into hard facts. In the facts of the present case, we have seen that all due and relevant enquiries have been made by the AO before the passing of the order u/s 143(3)/147. The arguments that scamsters have admitted to launder money by indulging in dubious manipulative practices of buying and selling shares in penny stock companies and making bogus Long Term Capital Gain claims is an issue of ala....
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....ts precedent value is limited to these issues. Reference can also be made to the oft-quoted decision of the Apex Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297 (SC) wherein the Apex Court clearly cautions that; "Judgments must be read as a whole and observations in judgments should be considered in the context in which they are made and in the light of the questions that were before the court." It would not be out of context to extract the sage advice given by their Lordships in the aforesaid decision, "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision." The Ap....
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.... Anip Rastogi (supra) was Director Shri Jai Kishan Poddar of M/s Consortium Capital Pvt. Ltd. were not connected. These entry providers/facilitators were strangers to the assessee. This is an undisputed fact. The assessee's transactions have not taken place through the said Director. The said Director Shri Poddar of M/s Consortium is a stranger to the assessee. The assessee's Broker is M/s Master Capital Services and the said Broker has confirmed the transaction of sale as genuine to the Assessing Officer. The evidence is available to the Id. PCIT and has not been rebutted or shown to be incorrect in the present proceedings. Consequently judicial finding that all brokers who have made bona fide sale and purchase in the stated company also manipulated the transactions cannot be given. The presumption cannot be drawn that merely because one Broker Shri Jai Kishan Poddar and some other somehow were so influential as per their claims hence could manipulate the Stock Exchange qua a specific company then all Brokers were similarly influential. This rash and irresponsible reasoning cannot be accepted. It would be a preposterous and impossible argument and cannot be accepted. ....
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....e law that trading in penny stock companies is banned. Many a penny stock company can become a big player if its strategies and economic environments align. Referring exclusively to the blue chip stocks for allaying the unsupported doubts and suspicions of the doubt-sayers it may be highlighted that an impartial sturdy of the rise and fall of some well established companies today would show that these were possibly penny stock companies. Reference may be made to the scrip of Eicher Motors whose share price as on 31 August, 2022 is hovering at Rs. 3411/-, it would be an eye opener to notice that in June, 1998 it was trading at Rs. 9/ -. Similarly, the share price of Kotak Mahindra Bank ranging currently in the range of Rs. 1902/-, was trading in September, 2003 at Rs. 10/- and sometimes even going as low as Rs. 1.8. Similarly, Lupin, who is trading at Rs. 660/- was trading at Rs. 2/- about two decades ago. Bajaj Finance today trading at Rs. 7181/- was ranging between Rs. 34/- or so and for almost half a decade in early 2000 and infact going much lower. Titan another well-established scrip trading today at Rs. 2622/- in 2000 was tradi....
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....who has confirmed the transactions; wherein banking transactions also reflect the same position, we find are facts which cannot be easily brushed aside on the basis of suspicions and statements of some broker who may have had his own reasons to dump his clients for unscrupulous criminal reasons. No doubt the banking transactions by itself, we agree, do not grant a legitimacy to the genuineness of the claim, however, the fact remains that these are events supported by sale of shares at the Stock Exchange through the D-Mat account coupled with the fact that there is no evidence on record that the company was ever barred from trading on the Stock Exchange or penalized for entering or entertaining shady transactions, the company even today continues to trade on the Stock Exchange. No violation by SEBI or under Company Law qua the said company has been brought on record by the Revenue. Thus, in the absence of any such fact or evidence, small cap companies/penny stock companies cannot by one stroke be painted to be companies whose share prices necessarily are capable of being manipulated. It would act as a death blow to the entrepreneurial spirit of the country. Every small cap company/p....
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....ulative actions we have Market Regulators like SEBI and Company Law Board. The Indian economy on the rise cannot be allowed to be tamped down by these suspicions of the Revenue. Robust evidence has to be brought on record to address the issue. In the facts of the present case, there is no allegation of any Regulatory Authority to show that trading in this specific Stock was barred or the company was delisted. We find that suspicions entertained by the Revenue cannot be the basis of unsettling the valid order. 20.8 We have also given our serious consideration to the arguments advanced on behalf of the Revenue namely that the assessee has frequently used National Stock Exchange (NSE) instead of BSE where the company was listed and traded. The Id. CIT-DR pointing from the replies of the assessee itself before the Tax Authorities has pointed out this frequent user. We have seen that the counsel also pointed out that the assessee has also used BSE (Bombay Stock Exchange) at many places. The argument has also been advanced on behalf of the assessee that the user of NSE instead of BSE at times was used by mistake and only to highlight the fact that sale was made through the requi....
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.... are reflected in the bank account. Thus, wherein the different sites are showing price of the specific share with or without corporate action and though it has been submitted that the BSE's official site supports it, the fact remains that the explanation of the assessee on account of the so-called confusion based on suspicions cannot be the basis of the Revisionary Powers. 21. It may also be relevant to pause and give a serious consideration to the consequences where a broker states that all transactions entered into by him were dubious. Serious consideration need be given to such a broker's statement as all he stands to suffer from giving such a rash, irresponsible statement is a presumptive estimated addition at best on his trading activity. However, the rash statements would put in jeopardy the transactions of all the people who have engaged the services of the said broker have trusted his intelligence/financial acumen of such a broker to make serious investments. To allow all transactions entered into by the parties with such a broker would be a case of punishing the wrong person who has trusted the wily broker in good faith. The tax authorities must seriously....
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.... Id. PCIT and even further elaborated before us by both the parties, we find on facts that the Revisionary order in the peculiar facts and circumstances proceeds entirely on presumptions, conjectures and surmises. The twin conditions as laid down by plethora of decisions of the Apex Court right from the case of Malabar Industries, we find are not met. Accordingly, for the reasons given hereinabove in detail, the impugned order is quashed." 5.2.27 As a result of the discussion in the preceding paras and the facts of the issue, I am of the considered opinion that the assessing officer has not done any enquiry during the course of assessment proceedings to rebut the claim of the appellant u/s 10(38). The assessing officer has just relied upon the report of the investigation wing and has formed his opinion on the taxability of the capital gain based on that. Undoubtedly, various courts have held that the assessing officer is bound to make the assessments on the basis of cogent evidences and not only the conjecture/surmise. Further, the appellant had duly discharged her onus of the of the requisite evidences regarding claim of deduction u/s 10(38). However, the assessing office....
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....egitimate beneficiaries of bogus long term capital gain in any of the alleged statements of the operators/broker or reports/orders of the SEBI or the Investigation Wing as relied upon by the AO. 11. The Hon'ble Supreme Court in the case of Adamine Construction Pvt Ltd reported in [2018] 99 Taxmann 45 while dismissing the appeal, made the following observations: "What is evident is that the AO went by only the report received and did not make the necessary further enquiries - such as into the bank accounts or other particulars available with him but rather received the entire findings on the report, which cannot be considered as primary material. The assessee had discharged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO. The assessee had discharged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO." 12. In the case of Odeon Builders Pvt Ltd reported in 110 Taxmann.com 64, held as under: "However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,86....