TMI Blog2017 (11) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... nk account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act. - Decided in favour of assessee. - I.T.A No. 569/Kol/2017 - - - Dated:- 15-11-2017 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For The Appellant : Shri Miraj D. Shah For The Appellant : Shri Sallong Yaden, Addl. CIT, DR ORDER Per Shri A.T.Varkey, JM This is an appeal filed by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 20.01.2017 for AY 2013-14. 2. The only issue to be decided in this appeal of assessee is as to whether the long term capital gains of ₹ 29,57,981 arising out of sale of quoted equity shares can be assessed as unexplained cash credit u/s 68 of the IT Act 1961. 3. Brief fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital gains earned by the assessee from the sale of shares of BSR Finance Construction Ltd and Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) were bogus and thus the entire capital gains which was claimed as exempt u/s 10(38) of the Income Tax Act 1961(herein after the Act ) was held to be bogus and the same was added as unexplained cash credit. The AO also held that in order to arrange for such capital gains, the assessee must have incurred some costs towards commission, and therefore the AO estimated such commission @ 0.50% of the sale value and added a sum of ₹ 15,619/- and accordingly added a sum of ₹ 29,73,600/- to the income of the assessee. The Ld CIT (A) relied on the observations of the AO and held that such transactions were dubious in nature and based on circumstantial evidences, the addition made by the AO was justified and thus the Ld CIT (A) upheld the additions made by the AO. 5. Aggrieved by the aforesaid order passed by the Ld. CIT(A) upholding the addition of ₹ 29,73,600, the assessee has preferred this appeal before us, seeking relief for deletion of the addition and directing the AO to treat the capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon ble Calcutta High Court in the CA 519 of 2011. (xi) Copy of contract notes issued by Mr Bikash Surekha, member of Calcutta Stock Exchange having SEBI registration no INB 031119713 and code no 03/995 for sale of shares of BSR Finance Construction Ltd. (xii) Copy of contract notes issued by Mr S K Khemka, member of Calcutta Stock Exchange having SEBI registration no INB 030071512 and code no 03/577 for sale of shares of Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd). (xiii) The bank statement of the maintained with South Indian Bank Ltd reflecting the payment received for the sale of shares of BSR Finance Construction Ltd and Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd). (xiv) Copy of demant statement of assessee maintained with Depositary Participant Ms Shree Bahubali International Ltd SBIL-000764 Client ID 10015233. Showing the shares were held in demat form and delivered to the broker in demat form. (xv) Copy of the Balance Sheet and Profit Loss Account of BSR Finance Construction Ltd and Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) for the year ended 31/03/2012 31/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold that the share transactions were bogus. 6.2 The ld AR, in course of hearing before us, filed a copy of the audited financials of M/s BSR Finance Construction Ltd and M/s Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) for the year ended 31/03/2012 31/03/2013. It is seen that M/s Oasis Cine Communication Ltd was incorporated on 27/10/1978, thus in the year under consideration it was the 34th year of the existence of the Company. On perusal of the Accounts it was seen that the Company was having Share Capital as on 31/03/2013 of ₹ 57.84 crore and Reserve and Surplus of ₹ 7.19 crore and was having assets worth ₹ 62.33 crore. Similarly it is seen that M/s BSR Finance Construction Ltd was incorporated on 17/02/1993, thus in the year under consideration it was the 19th year of the existence of the Company. On perusal of the Accounts it was seen that the Company was having Share Capital as on 31/03/2013 of ₹ 33.44 crore and Reserve and Surplus of ₹ 17.81 crore and was having assets worth ₹ 52.29 crore and a turnover of ₹ 6.97 crore as against a turnover of ₹ 2.01 crore as on 31/03/2012. The ld AR subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shore Goyal vs.ACIT ITA Nos. 1256/PN/2012 (Pune Tribunal) ( vii) CIT vs. Jamna Devi Agrawal [2012] 20 taxmann.com 529 (Bom HC) 6.3. The ld AR submitted that all the observations, conclusions and findings of the lower authorities are based on suspicion, surmises and hearsay. According to ld AR, it is trite law that the suspicion howsoever strong, cannot partake the character of legal evidence. Reference was made to the judgement of Hon ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC, Umacharan Shaw 37 ITR 271 and Omar Salay Mohamed Sait 37 ITR 151 . The ld AR submitted that the entire case of the revenue is based upon the presumption that the assessee has ploughed back his own unaccounted money in the form 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 form of LTCG. The ld AR referred to 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 Tribunal observed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016 . The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of 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 ld AR referred to the following judgments of Jurisdictional High Court:- ( i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, 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 assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 6.6. The ld AR submitted before us that where the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. ( i) ITO vs. Ashok Kumar Bansal ITA No. 289/Agr/2009 (Agra ITAT) ( ii) ACIT vs. J. C. Agarwal HUF ITYA No. 32/Agr/2007 (Agra ITAT) 6.8. The ld AR further submitted that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record to disbelieve that the assessee sold shares through registered share and stock broker with Calcutta Stock Exchange. The assessee produced all evidences to explain the source of the amounts received by the assessee from the brokers, therefore according to ld AR, the AO was not justified in assessing the sale proceeds of shares as unexplained cash credit under section 68 of the Act. 7. On the other hand, the Ld. DR vehemently opposed the plea of the Ld. AR and relied on the decision of the Ld CIT(A) and the AO and urged before the bench not to interfere with the order of the Ld CIT (A). 8. We have heard the rival submissions and perused the impugned order and have gone through the decisions of the Hon ble Apex Court and High Courts relied on by both the parties. We note that in the present case the appellant had purchased 400 shares of M/s. Quick Management Services Private Limited in F.Y. 2010-11 for a consideration of ₹ 1,00,000/- and against those shares as a result of amalgamation ordered by the Hon ble Calcutta High Court, the assessee got 6400 shares of M/s. BSR Finance Construction Limited; and when these entire shares were sold during the financial year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in CA No.575 of 2011; x) Copy of the share certificates issued of M/s. Oasis Cine Communication Limited in terms of the ratio as approved by the Hon ble Calcutta High Court in CA No.519 of 2011. xi) Copy of the contract notes issued by Mr. Bikash Surekha, Member of Calcutta Stock Exchange having same Registration No.INB031119713 and Code No.03/995 for sale of shares of M/s BSR Finance Construction Limited ; xii) Copy of the contract notes issued by Mr. S.K.Khemka, Member of the Calcutta Stock Exchange having same Registration No.INB030071512 and Code No.3/577 for sale of shares of M/s. Oasis Cine Communication Limited which was renamed as Eco Wave Infotech Ltd. xiii) The bank statement maintained with South Indian Bank Ltd. Reflecting the payment received for the sale of shares of M/s. Oasis Cine Communication Limited and M/s. Oasis Cine Communication Limited (which was renamed with Eco Wave Infotech Ltd.) copy of the demand statement of the assessee maintained with Repository participant M/s Shri Bahubali International Ltd. SBIL-000764 Client ID-10015233 showing that the shares were held in demat form and delivered to the broker in the demat form. xiv) Copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carved out certain features/modus-operandi of companies indulging in practices not sanctioned by law and as mentioned in such report. We note that neither any investigation were carried out against the assessee, nor against the brokers to whom the assessee dealt with or the companies in which the assessee dealt with the purchase and sale of shares in question were done by the AO. Thus the AO has failed to bring on record any material contained in the so called reports which are having adverse impact on the part of the assessee. Thus reliance on such report is held to be bad in the eyes of law and cannot be seen as a relevant material for making any adverse view or saddle addition against the assessee. 8.3. A perusal of the accounts of the companies in question, we find that M/s. Oasis Cine Communication Limited was incorporated on 27.10.1978 and thus in the year under consideration it was the 34th year of its existence. On perusal of the accounts, it is seen that the company was having share Capital as on 31.03.2013 of ₹ 57.84 crores and Reserve and Surplus of ₹ 7.19 crores and was having assets worth ₹ 62.33 crores. Similarly it is seen that M/s. BSR Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It is the assessee s contention that even though there are allegations against the broker, and for that reason the assessee cannot be held liable on this point, the tribunal held that As a matter of fact the AO doubted the integrity of the broker and the broker firm and also AO observed that the assessee had not furnished any explanation in respect of any discussion of trading of shares. The AO relied the loss of ₹ 25,30,396/- only on the basis of information submitted by stock as fictitious. The AO has also not doubted the genuineness of the documents placed by the assessee on record. The AO s observation and conclusion are merely based on information. Therefore on such basis, no disallowance can be made and accordingly we find no infirmity in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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