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Manish Kumar Baid And Mahendra Kumar Baid Versus ACIT, Cir-35, Kolkata

2017 (10) TMI 522 - ITAT KOLKATA

Addition u/s 68 - sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources - rejecting the assessee’s claim of long term Capital Gains (LTCG) on sale of those shares - claim of exemption u/s 10(38) - Held that:- SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and/or Ashita Stock Broking Ltd’s name is not reflected at all. Hence the allegation that the assessee and/or Ashita .....

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the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the from of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the AO to be false or fabricated. The facts of the case and .....

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ct. - Decided in favour of the assessee. - Unexplained expenditure u/s 69C - assessee must have incurred commission expenses @ 5% of the LTCG - Held that:- As already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the Id AO. Consequently the addition u/s 69C of the Act is hereby directed to be deleted. We accordingly hold that the reframe question no. 2 raised hereinabove is decided in the negative and in favour of the assessee. - .....

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ules fail, the Id AO is authorized in law to proceed with the computation mechanism provided in Rule 8D(2) of the Rules. In view of this we hold that the Id AO was not justified in invoking the provisions of section 14A of the Act read with Rule 8d of the Rules, the disallowance made by the Id AO directed to be deleted - Decided in favour of assessee. - I.T.A No. 1236/Kol/2017 And I. T.A. No. 1237/Kol/2017 - Dated:- 18-8-2017 - Shri. A. T. Varkey, JM And Shri M. Balaganesh, AM For The Appellant .....

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independent order of assessments framed by ACIT, Circle-35, Kolkata [in short the ID AO] u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) on 28.12.2016 in the case of Manish Kumar Baid and order of assessment framed u/s 143(3) of the Act on 27.12.2016 in the case of Mahendra Kumar Baid, for the Asst Year 2014-15. As the issues involved are identical in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience. The .....

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68 of the Act in respect of sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee s claim of long term Capital Gains (LTCG) on sale of those shares. 2. Whether on facts and circumstances of the case Id CIT A was justified in upholding the action of the ID AO in treating the transactions in shares of kailash Auto Finance Limited (KAFL) resulting in long Term Capital Gain as bogus and thereupon making addit .....

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the AO in the Assessment Order are that the assessee claimed long term capital gains from transactions in shares of Kailash Auto Finance (KAFL). The Id AO found that the assessee, on 20.12.2011, purchases 240000 shares of the face value of ₹ 1 each in Careful projects Advisory (CPAL) through off market from M/s Brijdhara Mercantile Private Limited (name changed to M/s Tremendous Mercantile Private Limited) for a consideration of ₹ 2,40,000, The Id AO also found that CPAL was amalgam .....

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id within the previous year 2013-14 corresponding to the Asst. Year 2014-15, The aforesaid transactions resulted in Long Term Capital Gains and the assessee claimed exemption u/s 10(38) of the Act. 3.1 The Id AO observed that the assessee made gain of almost 3805% in a span of 24 months. The price movement of the scrip in the span of 24 months raised doubts in the mind of the Id AO that profit earned by the assessee were beyond human probabilities. The Id AO therefore made a deeper study to asce .....

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bserved that during the FY 2011.12, CPAL increased its authorized share capital to ₹ 29 crores and them the shares of ₹ 10 each were split into 1:10 i.e. each shares of ₹ 10 into shares of Re. 1 each. The said company CPAL thereafter issued bonus shares to the existing equity shareholders in the ratio of 1:55. The Id AO, considering the weak operating profits of CPAL., suspected the issue of bonus shares in the unrealistic ratio of 1:55. He held that the probable reasons were w .....

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the scheme of amalgamation. 3.4 The Id AO referred to the statement of Shri Sunil Dokania recorded u/s 131 of the Act by the Investigation wing on 12.06.2015, wherein, Shri Dokania has explained the modus operandi of providing of LTCG in the scrip of KAFL. He stated that by way of amalgamation of CPAL with KAFL. Mr Dokania, in the aforesaid statement shares of KAFL as against shares of CPAL. Mr. dokania, in the aforesaid statement, stated before the investigation wing that he had got equal amou .....

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e case of Religare Securities Limited ; statement of Shri Narendra Balasia recorded on oath u/s 133A in the case of SMC Global Securities Limited; Statement of shri Pradip Jainrecorded on 31.3.2015 u/s 131 and the two Statements of Shri Amit Dalmia recorded by the Investigation wing of 31.3.2015 and 5.6.2015, the Statements were annexed to the Assessment Order to come to a Conclusion that the assessee was one of the beneficiaries of the transactions in shares of KAFL resulted in Bogus claim of e .....

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share (EPS) during that period was either nil or negative but the value of shares was inflated highly. The Id AO observed that the prices of shares of KAFL were rigged by the entities connected to KAFL. 3.6 The Id AO referred to three separate orders passed by SEBI dated 29th March, 2016, 15the June 2016 31st October 2016 support of his his adverse conclusions drawn against the assesee that several entities related/connected to KAFL rigged the prices by 230% during the period of January, 2013 J .....

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ssessee to hold that the prices of KAFL. Were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL., The Id AO Further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one. 3.7 The Id AO made enquiries from the Bombay Stock Exchange as to the counter party members who bought the shares of KAFL sold by the assessee through his shares broker viz. Ashika St .....

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ank accounts at 4th or 5th layers. On the basis of the said test check analysis, the Id AO doubted the genuineness of purchases transactions done by all the buyers in relation to shares sold by the assessee. The id AO observed that the case trail analysis prepared on sample basis strengthens the suspicions over the genuineness of the buyers of shares and further suspected that the unaccounted case of the assessee was layered into the bank account of the exit providers. 3.8 The Id AO relying on t .....

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n such clandestine operations and transactions. It is impossible to have direct evidence or demonstrative proof of every move. 3.9 The Id AO concluded that the assessee s transactions resulting in LTCG on sale of shares of KAFL were bogus and that the assessee ploughed back his unaccounted money in the books of accounts which is assessable under section 68 of the Act. 4. On first appeal the Id CIT (A) dismissed the grounds raised by the assessee against his claim of exemption u/s 10(38) of the A .....

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various documentary evidences furnished in the Paper Book in support of the claim of the assessee to prove to genuineness of the transaction relating to LTCG on sale of shares of KAFL. The documentary included the following. (i) Purchase Bill for purchase of 2,40,000 shares of CPAL from M/s Brijdhara mercantile Pvt. Ltd. On 20.12.2011 falling in the previous year relevant to the Assessment Year 2012.13. (ii) Bank Statement showing payment of the purchase consideration of shares of CAPL to Brijd .....

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atio of 1:1. (vi) The Demat statement of the assessee with United Bank of India showing receipt of Shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of Ashika Stock Broking Ltd. Share broker though whom the assesee sold shares of KAFL in the FY 2013-14 relevant of the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s Ashika Stock Broking Ltd. By account payee chaeues. (ix) Demat statement showing delivery of shares of KAFL on sale of shares. 5.1 The .....

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res by the assessee was not held to be bogus. The Id AR submitted that the evidences and documents furnished by the assesse were neither found to be false nor fabricated. The Id AR Submitted that the Id AO doubted the genuineness of the sale transactions of the basis of various orders of SEBI and/or the Investigation Wing and the statements of various persons recorded by Investigation Wing in the cases of Persons unconnected to the assessee. It submitted that the Id AO disallowed the assessee s .....

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to KAFL, it is seen from the Interim Order dated 29th March, 2016 that SEBI has listed the names of various entities/persons who were the promoters and/or the connected or related parties provided bogus transactions of LTCG various beneficiaries. The list of the names of the beneficiaries was also given in the said order. The Id AR referring to the said lists has shown to us that the name of the assessee and/or his broker namely Ashika Stock Broking Ltd. Nowhere appear in the said lists annexed .....

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KAFL. The Id AO relied on the statements of different persons including Sri Sunil Kumar dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The Id AR has shown that the list of beneficiaries provided by the these persons also did not contain the name of the assessee and/or the name of .....

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to purchase shares of CPAL, when he knew that the company allotted bonus shares in the ration of 1:55. The assesee sold that shares of KAFL when he found that the prices increased substantially in the market. The Id AR submitted that he being innocent gullible investor, his name did not appear in the list of SEBI who were names as beneficiary to the alleged scheme formulated by some persons. 5.5 The Id AR, in course of hearing before us, field a copy of the audited financials of KAFL for the FY .....

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.6 The Id AR also brought to our notice the Financials of KAFL reported in SEBI s interim order dated 29th March, 2016 to show that the Price Earnings Ratio (in short P/E ratio) of that Company increased to ₹ 4,065 in FY 2013-14 from Rs. Nil in the FY 2012-13. The Id AR stated that the conclusion drawn by Id AO that the financials of the company shown Nil P/e ratio and did not give rise to steep increase of market price of the shares of KAFL, is contrary to the facts on record. 5.7 The Id .....

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to provide LTCG as the same it exempt from the tax. Kailash Auto is such scripts which is engaged in providing accommodation entry in from of LTCG/STCL to various beneficiaries are allotted the shares at nominal price and the price of the shares rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entries are paid by the unaccounted money of the beneficiaries in cash. As a relult unaccounted income ploug .....

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e from the statement of Shri Dokania. The Id. AR also referred to the statements of various other persons annexed with the Assessment order to show that one of the said persons names the assessee to have been benefitted by them in respect of LTCG claimed by the assesee. The Id AR submitted that the Id AO was unjustified in drawing an adverse inference against the assessee on the basis of his enquiry unlade from BSE to find out the names of the buyers who ultimately bought the shares sold by the .....

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k Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers. Who were involved in the trading transactions in the secondary platform. In such a situation it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries alleged by the Id AO. The Id AR referred to the judgement of Hon ble Bombay High Court in the case of CIT vs. Lavanya Land Pvt. Ltd. [2017] 83 taxman .....

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(i) Baijnath Agarwalla vs. ACIT [2010] 40 SOT 475 (Agra Third Member) (ii) Ganeshmull Bijay Singh Baid HUF vs. DCIT-ITA No. 544/kol/13 dated 4.12.2015 (Kolkata Tribunal) (iii) Malti Ghanshyambhai Patodia vs. ITO- ITA No. 3400/Ahd/2015. (Ahmedabad Tribunal) (iv) Pratik Suryakant Shah vs. ITO-[2017] 77 taxmann.com 260 (Ahmedabad Tribunal) (v)podduchari Jeevan Prashant vs. ITO-ITA No. 452/HYD/2015 (Hyderabad Tribunal) (vi) Anil Nand Kishore Goyal vs. ACIT-ITA nos. 1256/PN/2012 (Pune Tribunal) (vii .....

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ue hinges upon the presumption that the assessee has ploughed back his own unaccounted money in the from of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the from of LTCG. The Id AR referred the judgement of Special Bench of Mumbai Tribunal in the case of GTC industries Ltd. Vs. ACIT [2017] 164 ITD 1 (Mumbai Trib.) (SB) The Tribu .....

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e the basic of addition except for some material evidence on record. The theory of preponderance of probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favorable factors in his side, The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basic of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material .....

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ations were carried out by different agencies, there is not evidence against the assessee to hold that the assessee wa a beneficiary to the modus operandi adopted by different entities/brokers/entry operators. The Id AR submitted that, in view of the aforesaid judgment of Special Bench of Hon ble Mumbai Tribunal, various judgements relied on by the Id AO against the assessee are irrelevant in as much as the said judgements are based on conclusions drawn on the basis of circumstantial evidences o .....

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e Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016. The transactions were through account payee claques and reflected in the books of accounts, The purchase of shares and the sale shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The Id AR referred to the following judgement of jurisdictional High Court:- (i) M/s Classic Grawers Ltd. .....

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he view expressed by the Id AO but he miserable failed to substantiate that. The High Court held the transaction were at the prevailing pirce and therefore the suspicion of the Id AO was misplaced and not substantiated. (ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 ) (Cal)- In this case the Hon ble Calcutta High Court held that on the basic of a suspicion howsoever strong it is not possible to record any finding of fact, As a matter of fact suspicion can nev .....

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on were as per norms and suffered STT, brokerage, service tax, and cess. There is not iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. (iv) CIT V. Rungta Properties Limited [ITA No. 105 2016] (Cal HC)- In this case the Hon ble Calcutta High Court Affirmed the decision of this tribunal wherein, the tribunal allowed the appeal of the assesee where the Id AO did not accept the explanation of the assessee in respect of his t .....

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merely based on the information received by him. The Appeal filed by the revenue was dismissed. (v) CIT V. Andaman Timbers Industries Limited (ITA No. 721 of 2008] (Cal HC)- In this case the Hon ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the Id AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (vi) CIT V. Bhagwati Prasad Agarwal [2009 TMI-34738(Cal HC) in I .....

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documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assesee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 5.12. The Id AR submitted before us that where the purchase and sale transaction are supported and evidenced by Bills, Contract Notes. Demat statements and bank statements etc., the transactions of purc .....

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(iii) ITO vs. Ashok Kumar Banssal- ITA No. 289/Agra /2009 (Agra ITAT) (iv) ACIT vs. Amit Agarwal & Others- ITA Nos. 247(Kol) of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT- IT (SS) A Nos 22-26/Kol/2011 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO -ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO-ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) (ix) Anil Nandkishore Goyal vs. ACIT -ITA Nos. 1256/PN/2012 .....

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2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT -ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) 5.13. The Id AR further submitted before us that once the assessee has furnished all evidence in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgment of Hon ble Supreme Court in the case of Krishnanand Agnihotri vs. the State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon ble Apex Court held that t .....

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de on the basis of suspicion. It has to act on legal grounds established by evidence. The Id AR submitted that similar view has been taken in the following judgements while deciding the issue relating to exemption claimed by the assesee on LTCG on alleged Penny stocks. (i) ITO vs. Ashok Kumar Bansal- ITA No. 289/Agr/2009(Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF- ITA No 32/Agr/2007 (Agra ITAT) 5.14. The Id AR further submitted that the Id was not justified in taking an adverse view against the .....

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it under section 10 (38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amta Agarwal & Others - ITA Nos. 2478(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum). 5.15. The Id AR also submitted that the Id AO was not justified in dis .....

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e, no adverse inference could be taken against the assessee on the basis of untested statements without allowing opportunity of cross-examination. The Id AR referred to and relied on the following judgements in support of the aforesaid submissions :- (i) Andman Timber Industries vs. CCE - [2015] 62 taxmann.com 3 (SC) (ii) ITO vs Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT) (iii) ACIT vs. Amita Agarwal & Others ITA No. 247/(Kol) of 2011 (Kol ITAT) (iv) ITO vs. Bijaya Ganguly- ITA 62 .....

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i) Farah Marker vs. ITO -ITA No. 3801/Mum/2011 (Mumbai ITAT) 5.16. The Id AR Also submitted that the Id AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares of KAFL received by the assessee 68 of the Act to hold that the sale proceeds of shares of KAFL received by the assessee from M/s Ashika Stock Broking Ltd. was not satisfactorily explained by the assessee. There is not evidence on record to disbelieve that the assessdee sold shares .....

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ssee, the Id AO was not justified in concluding that the assessee s transactions relating to LTCG on sale of shares of KAIL were bogus, The Id CIT (A) was also not justified in dismissing the appeal without properly appreciating the facts of the case and the evidences produced by the assessee s claim of exemption of LTCG on sale of shares of KAFL was not distinguished on facts and/or on law by the Id CIT(A), On the other hand, he assessee s transactions of LTCG were bogus ignoring all legal evid .....

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mstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgment of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (Supra) for this proposition. The various facets of the arguments of the Id AR supra. With regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principle .....

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ty which has not been subject to cross -examination. Moreover, it is also pertinent to note that the assessee and/or the stock broker Ashita Stock Broking Ltd. name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions not they had been the beneficiaries of the transaction of shares of KAFL. Hence we hold that there is absolutely not adverse material to implicate the assessee to the entire gamut of unwarranted unwarranted allegations leveled .....

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the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities/promotors/brokers/entry operators. In the instant case, the shares of CPAL were purchased by the assesee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL. The assessee was allotted equal Number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits ro .....

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olved in price rigging of KAFL shares fails. We also find that even the SEBI S order heavily relied upon by the Id AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is not evidence against the assessee. Much less to speak of direct evidence. The enquiry by the Investigation wing and/or the statements of several persons recorded by the Investigation Wing in connectio .....

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sessee s to be false or fabricated. The facts of the case and the evidences in support of the assessee s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the Id AO was not justified in rejecting the asessee s claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon ble jurisdictional High Court relied upon by the Id AR and findings given thereon would apply to the facts of the in .....

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essee must have incurred commission expenses @ 5% of the LTCG. The Ld AR submitted that there is not evidence of incurring such expenditure. It was pleaded that not addition u/s 69C of the Act could be made unless it is found that the assesse incurred some expenditure which were not recorded in the books of accounts and the Assessee failed to substantiate the source of such expenditure. 7.1 We have already held that the transactions relating to LTCG were genuine and not the accommodation entries .....

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(1) of the Rules, having regard to the accounts of the assessee. The assessee submitted before the Id AO that did not incur any expenditure in relation to exempt income except demat expenses which the assessee did not claim any deduction. The Id AR placing reliance on the judgement of Hon ble Calcutta High Court in the case of CIT vs. REI Agro Ltd. in ITAT No. 161 of 2013 submitted that the disallowance made by the Id AO be directed to be delated in the absence of satisfaction recorded by the Id .....

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on in terms of section 14A of the Act, We also find that Demat expenses were not claimed by the assessee in the return filed. We hold that the Id AO ought to have recorded primarily his satisfaction as mandated in terms of section 14a(2) of the Act and Rule 8D(1) of the Rules and without resorting to the same, he ought not to have proceeded directly as per Rule 2D(2) of the Rules. Only if the test provided in Rule 8D(1) of the Rules fail, the Id AO is authorized in law to proceed with the comput .....

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