TaxTMI 
TaxTMI 
2026 (9) TMI 269
X X X X Extracts X X X X
X X X X Extracts X X X X
.... judgment. 2. As the disposal of T.C.A.Nos.714 and 721 of 2018 will have a bearing on the outcome of the other cases, they are taken up as lead cases for disposal of this batch. 3.1. T.C.A.No.714 of 2018 has been filed by the Revenue against the order dated 28.02.2018 passed by the Income Tax Appellate Tribunal, Madras "C" Bench [for brevity, "the Tribunal"] in I.T.A.No.1787/Chny/2017, whereby the Tribunal allowed the appeal of the assessee, Sohanraj Uttamchand, and directed deletion of the addition of Rs. 32,90,96,125/- made by the Assessing Officer under Section 68 of the Income-tax Act, 1961 [for brevity, "the Act"], and further directed that the gain arising from the sale of shares of PFL Infotech Limited be treated as Long Term Capital Gain exempt under Section 10(38) of the Act. 3.2. T.C.A.No.721 of 2018 has been filed by the Revenue against the connected order dated 14.03.2018 passed by the very same Bench of the Tribunal in I.T.A. No.1786/Chny/2017, whereby the Tribunal allowed the appeal of Sohanraj Praveen Kumar, the brother of the assessee in the first appeal, and similarly directed deletion of the addition of Rs. 38,05,28,491/- made under Section 68 of the Act,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act, and, in the alternative, as business income taxable under Section 28 of the Act, thereby denying the exemption claimed under Section 10(38) of the Act. The Commissioner of Income Tax (Appeals) confirmed the assessment. 6. In T.C.A.No.721 of 2018, the respondent/assessee, who is a partner in Diamond Creations and engaged in the jewellery business, similarly claimed exemption under Section 10(38) of the Act in respect of Long Term Capital Gain of Rs. 38,05,28,490/- arising from sale of 7,50,000 shares of Risa International Limited, which had been acquired by way of preferential allotment at Rs. 10/- per share pursuant to a Scheme sanctioned by the Bombay High Court, and were subsequently sold at prices going up to Rs. 600/- per share. On facts materially similar to those in the connected case, and additionally relying upon a statement recorded from one Prasanta Bose, a director of Shallot Vincom Private Limited (through whom certain purchases were routed), the Assessing Officer made an identical addition under Section 68 of the Act, which was confirmed by the Commissioner of Income Tax (Appeals). 7. In both cases, the Tribunal, by the impugned orders, allowed the appeals....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tement of Shri Prasanta Bose, a director of the Shallot group of companies, expressly disclosed that his companies were incorporated for the sole purpose of providing accommodation entries to beneficiaries of penny-stock manipulation in lieu of commission, and this, taken cumulatively with the statement of Abhinandan Jain (a director of the company whose shares were traded, who was in close proximity with the assessee's) admitting that the price of the shares had been artificially inflated by named operators in connivance with others, was sufficient material to sustain the addition. (f) Reliance is placed on the decisions of the Supreme Court in Sumathi Dayal (supra) and Durga Prasad More (supra) to emphasize that the Tribunal was bound to apply the test of human probabilities enunciated therein, particularly the principle that the taxing authorities are entitled to look at the surrounding circumstances to determine the reality of a transaction, and that mere apparent genuineness on paper, such as banking channel transactions and stock exchange trades, cannot be treated as conclusive when the surrounding circumstances render the transaction inherently improbable. CONTEN....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eturned unserved without further follow-up. (e) The statements of Prasanta Bose and other intermediaries, at best, disclosed a modus operandi employed by unrelated entry-operators in relation to a small fraction of the overall trading volume in the scrip; those statements did not implicate either assessee by name, and no corroborative material such as evidence of cash payment by the assessee's to any operator was ever brought on record. (f) It was submitted that the decisions relied upon by the Revenue, namely, Sumathi Dayal (supra) and Durga Prasad More (supra), were rendered on facts wholly distinguishable, the former concerning consistent and improbable winnings from horse racing (a game of pure chance), and the latter concerning cash credits without any corroborative documentary trail, and were inapplicable to a case involving purchase and sale of listed securities through a recognised and regulated stock exchange, upon payment of Securities Transaction Tax, with full documentary trail of contract notes, demat statements and banking transactions. (g) He placed reliance on the decisions of the Supreme Court in Dhakeshwari Cotton Mills Ltd v. CIT [(1954....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shares. 13. We find considerable force in the observation made by the Tribunal that the Assessing Officer, despite issuing notices under Section 131 of the Act to the several purchasers of the shares from the assessee's, did not carry the investigation to its logical conclusion where such notices returned unserved, notwithstanding that the identity of those purchasers, being traceable through the stock exchange and depository records, was well within the Revenue's reach. Similarly, the persons named by the intermediary witnesses as having orchestrated the alleged price manipulation, such as Hemat Goelka and Naresh Jain, were never summoned or examined by the Assessing Officer and no material was placed before the Tribunal or before us to demonstrate any direct nexus between such persons and either of the respondents/assessee's. 14. We are also in agreement with the finding of the Tribunal that the statement of Prasanta Bose, relied upon extensively by the Revenue in the case relating to Risa International Limited, established, at its highest, that a small fraction of the overall trading volume in that scrip was routed through certain accommodation entities, and that even ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Tribunal must not base its findings on suspicion, conjecture or surmise, nor act on no evidence, or on improper rejection of material evidence, and that findings so arrived at, even though rendered on questions of fact, are liable to be set aside. An addition sustained principally on suspicion, without concrete, corroborated evidence directly implicating the assessee, cannot be allowed to stand. This principle has been consistently reiterated, including in Umacharan Shaw and Brothers (supra). 18. Moreover, as rightly held by the Tribunal, mere steep appreciation in the price of a share does not, by itself, justify treating the resultant capital gain as bogus, where the shares are traded on a recognised stock exchange, the consideration is routed through banking channels and there is no cogent finding that the assessee was a party to, or complicit in, any manipulation of the price. 19. The Tribunal has, in categoric terms, clarified that its findings are confined to the facts and material placed before it in the case of each assessee, and do not constitute a finding, one way or the other, on the general character of the two companies, viz., PFL Infotech Limited and Risa Int....