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TMI Blog2018 (6) TMI 1451X X X X Extracts X X X X X X X X Extracts X X X X ..... addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term 'capital asset' was not includible in total income of the assessee in view of section 10(38) of the Act. 2.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the claim of sale of shares and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced. 2.3 That the learned Commissioner of Income Tax (Appeals) has confirmed the above addition and denied exemption without confronting the material/investigation to appellant and also providing cross examination of the parties on whose statements reliance has been placed in impugned order of assessment and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f both the parties and perused the findings of the authorities below. In all the grounds of appeal, the assessee challenged the addition of Rs. 19,51,357/- u/s 68 of the Income Tax Act, 1961 (in short "Act"). 3. Brief facts of the case are that return declaring income of Rs. 5,31,370/- was filed on 18.11.2014. In this return the assessee had claimed long term capital gains of Rs. 19,39,557/- as exempt u/s 10(38) of the IT Act. The Assessing Officer referred to the investigation carried out by the Directorate of Investigation, Kolkata to unearth the organized racket of generating bogus entries of long term capital gains which is exempt from tax. After discussing the modus of such racket of generating of bogus entries, the Assessing Officer pointed out that the Directorate of Investigation, Kolkata investigated transactions in 84 penny stock shares quoted on BSE and examined on oath a large number of brokers, promoters and entry operators. As a result of this investigations, large number of individuals had been identified who had taken such accommodation entries and a number of such individual had surrendered the accommodation entry for taxation purposes. The Assessing Officer point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "9.1 The assessee sold the shares on 30.07.2013 & 31.07.2013 (500+5500=6000) through the broker M/s Indus Portfolio Pvt. Ltd, for a total sale consideration of Rs. 19,53,372/- for which the shares were dematerialized only on 11.06.2013. It is thus evident that just a few days prior to the date of sale, these shares are dematerialized though these are said to have been purchased on 22.11.2011. The transaction entered into by the assessee does not authenticate long term capital gain in view of the fact that these physical shares were purchased through off market and these shares were dematerialized only just a few days prior to the date of sale. 10. The assessee has shown credit of Rs. 19,51,357/- in his bank account as sale proceeds of shares. As is evident from the investigation the actual source of this credit is the unaccounted cash of the assessee. The assessee was asked to explain the source of this credit. The explanation offered that it is sale proceeds of shares are found to be not only unsatisfactory but false. The assessee has been confronted with all the evidence gathered and the issues mentioned in the foregoing paragraphs. The explanation of the assessee is gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of the assessee u/s 68 of the IT Act. The Assessing Officer further held that the tax on these additions would be charged as per section 115BBE of the IT Act. 4. The assessee challenged the addition before Ld.CIT(A) and filed a written submission which is reproduced in the appellate order which reads as under:- 1. "While assessing the income of the appellant, Ld. AO completely ignored the facts of the case and the documents/evidences filed by the appellant. Appellant purchased shares, get the shares dematerialized, sold the shares on recognized stock exchange, paid STT and received amount through banking channel from the broker. Copy of bills of purchase of shares; copy of Share certificates, copy of share transfer form, copy of bank statement, copy of Demat account, and copy of account from the broker M/s Indus Portfolio P. Ltd are enclosed herewith. 2. Ld. AD has mentioned several persons in his assessment order including Sh. Anil Khemka, Sh. Sanjay Vohra, Bidyoot Sarkar and Sh. Nikhil Jain on which Income tax survey were conducted by the department. In this regard, it is to submit that the appellant has no direct or indirect relation with any of these persons or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transfer forms etc. before Ld. AO and no adverse inference could be drawn only because the shares were purchased in cash. Regarding Demat of shares, it is to submit that it is the option of the buyer of shares to keep the shares either in Demat form or in paper form. Merely because the shares were get Demat by the appellant at a later stage, no adverse inference could be drawn. 7. Ld. AO has no evidence in his favour to prove that the transaction of purchase and sales of shares is bogus and he is proceeding only on suspicion, conjectures and surmises. Ld. AO has failed to prove any material on record which proves that the transaction on the Recognised Stock Exchange is manipulated and bogus. 8. Increase and decrease in market rates of shares on stock exchange always based on market forces and are determined on the basis of so many factors. It is not within the power of appellant to manipulate the rates of shares on stock exchange. Merely because there is, a sharp increase in the rates of shares, no adverse inference could be drawn only on the basis of mere suspicion and in absence of any direct or cogent evidence. 9. Ld AO has alleged in his assessment order that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he explanation of the assessee and material on record, not only confirmed the addition of Rs. 19,39,357/- but also enhanced the same addition to 19,51,357/-. Thus, the appeal of the assessee has been dismissed with enhancement. The findings of Ld.CIT(A) in para 3.5 to 3.18 is reproduced as under:- 3.5. "I have carefully considered the appellant's submissions. Before going to the merits of the issue at hand it may be relevant to look into the general modus operandi adopted by the persons who indulge in converting their unaccounted cash to accounted form through the route of capital gains. With the exemption reduction in tax on capital gains on shares, there is rampant practice of routing the unaccounted cash in the form of long term capital gains and claiming the same as exempt/ concessional tax rate. The general modus operandi adopted by such type of persons is as under: (i) With the collusion of broker, shares are purchased of an unknown company with dubious background for miniscule consideration. For this purpose, the broker issues a fake brokerage note. (ii) The companies in which shares are traded are usually in league with the broker and the broker undertakes off-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000/-. ii) The shares were purchased in off market transaction from M/s Shree Ji Broking Pvt Ltd. iii) The shares were purchased in the name of the Appellant on 22.11.2011. iv) Payment for these shares was claimed to have been made on 24.11.2011 by cash i.e. two days after the shares were purchased. v) The shares were dematerialised just before the sale of shares. vi) The shares were sold on in July 2013 for an amount of Rs. 19,53,372/-. 3.8 Further, from the details gathered by the AO during the course of assessment proceedings following facts emerge:- i) During the course of proceedings u/s 131(1) of the IT Act before the Investigation Wing Sh. Anil Kumar Khemka stated that his brokerage company was being used for providing accommodation entries in various scrips and M/s Turbo Tech Ltd was once such scrip. ii) The financials of the penny stock M/s Turbo Tech Ltd. and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. The history of investment in shares made by the appellant also generally reveals that she has not been dealing in shares on a regular basis. It has also been found that entries of LTCG have also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine transaction. 3.10 From the facts on record it is also evident that the appellant is not a regular investor in shares. Hence, it is quite surprising as to how she earned a phenomenal return of almost 50 times within a short span of period which is extremely unusual. This being the case, it is apparent that the appellant has entered into a sham transaction with the full knowledge of it, so as to convert unaccounted money into accounted money in the guise of capital gains. 3.11 The apparent is true until and unless it is disproved. Here in the instant case, the Managing Director and other Director Shri Nikhil Jain & Shri Anil Kumar Khemka on 02.06.2015 & 30.03.2015 of Abhinandan Stock Broking Pvt. Ltd. & Devshyam Stock Broking Pvt.ltd, had categorically stated that they were involved in providing accommodation entries regarding sale and purchase of shares through his companies. Therefore, human probabilities have also to be applied to comprehend the transactions and to see the real intention behind entering into these transactions. In similar circumstances, the honourable Gauhati High Court of CIT Vs Sanghamitra Bharali (361 ITR 481) had held that the capital gains are sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of make belief. Facts of the case only lead to the inference that these transactions are not genuine. Similar view has been held by the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of Balbir Chand Maini V/s CIT 340 ITR 161 (P&H) 247 CTR 468 (P&H) and the Case of Som Nath Maini V/s CIT 306 ITR 484 (P&H). 3.14 Reference in this regard may also be made to the following case laws.- I. Sanjay Bimal Chand Jain L/h of Shanti Devi Bimal Chand Jain V/s CIT ITA No. 18/2017 (Mumbai High Court Nagpur Bench) II. Ratnakar M. Pujari V/s ITD ITA No. 995/Mum/2012 (res) dated 03/08/2016 III. Kamalchand Nathimal Lunia V/s ITO in ITA No. 436/Ahd./2013 (lTAT Ahmedabad) IV. Sh. Sanjay Ashok Jain in ITA No. 4185/Mum/2015 and ITA No. 4186/Mum/2015 (lTAT Mumbai) V. Santlal Gupta in ITA No. 2802 (Mum/20B (ITAT Mumbai) Kantadevi Gupta in ITA No. 2829/Muml2016 VI. Sudhir Balraj Jumani HUF ITA No. 1570/Ahd/2012 (ITA Ahd.) VII. Disha N. Dalwani ITA No. 6398/Mum/2012 ITAT Mumbai. VIII Zakrullah Choudhary, Pimpri V/s ACIT in ITA No. 669/PN/2012 DATED 18/02/2014. 3.15 Keeping in view the aforesaid factual and legal position, the addition made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied. He has filed copy of the shares certificate with transfer form, copy of debit note issued by Shreeji Broking (P) Ltd., copy of cash receipt of Shreeji Broking (P) Ltd., copy of ledger account of Indus Portfolio (P) Ltd., copy of form for evidence for payment of securities transaction tax on transaction entered in a recognized stock exchange and copy of the bank statement of the assessee in the Paper Book. He has further submitted that on identical facts, ITAT SMC Bench, Delhi in the case of Meenu Goel vs ITO in ITA No.6235/Del/2017 for AY 2014-15 vide order dated 19.03.2018 relying upon the decision of Hon'ble Punjab & Haryana High Court in the case of Pr.CIT vs Prem Pal Gandhi in ITA No.95-2017 vide order dated 18.01.2018, allowed the claim of the assessee. The findings of the Tribunal in para 6 to 8 are reproduced as under:- 6. "I have heard both the parties and perused the relevant records available with me, especially the orders of the revenue authorities and the case law cited by both the parties. I note that assessee has earned Long Term Capital Gain amounting to Rs. 18,46,600/- during the financial year 2013-14 and the same has been claimed exempt under Section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most of the case laws of the Hon'ble High Courts referred by the Ld. DR the reason on the basis of addition was confirmed was that the assessee had not tendered cogent evidence with regard to share transaction, however, in the present the case assessee has submitted all the documents / evidences, therefore, the case laws relied by the Ld. DR are based on distinguished facts and circumstances, hence, the said case laws are not applicable in the present case. However, in my considered opinion, the issue in dispute is squarely covered by the various decisions of the ITAT and the Hon'ble High Courts including the recent decision dated 18.1.2018 of the Hon'ble High Court i.e. Hon'ble High Court of Punjab & Haryana in the case of PCIT (Central), Ludhiana vs. Prem Pal Gandhi passed in ITA No. 95 of 2017. Decision dated 18.1.2018 of the Hon'ble High Court of Punjab & Haryana in the case of PCIT (Central), Ludhiana vs. Prem Pal Gandhi passed in ITA No. 95 of 2017 wherein it has been held as under:- "2. The following questions of law have been raised:- (i) Whether on the facts and in the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal has erred in upholding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment year 2008-09 at Rs. 400/- per share. In the above case, namely, ITA 18- 2017 also the assessee had purchased and sold the shares in the same assessment years. The AO in both the cases added the appreciation to the assessees' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee's income from undisclosed sources. In ITA-18-2017 also the CIT(Appeals) and the Tribunal held that the AO had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. 5. In these circumstances, following the judgment in ITA- 18-2017, it must be held that there is no substantial question of law in the present appeal. 6. Question (iv) has been dealt with in detail by the CIT(A) and the Tribunal. Firstly, the documents on which the AO relied upon the appeal were not put to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the SEBI was also not confronted to the assessee. AO did not mention any such fact in assessment order. More so in those reports and statements, the name of the assessee has not been referred to. Ld. Counsel for the assessee, therefore, rightly contended that the twin conditions of section 10(38) of the Act have been satisfied in the case of the assessee. The assessee has been able to prove that she has entered into the genuine transaction of purchase and sale of shares and the sale consideration is received from broker through banking channel. The brokers have not denied the transaction with the assessee. The assessee rooted the transaction of sale of shares through recognized stock exchange after making payment of STT. In similar circumstances, ITAT SMC Bench, Delhi in the case of Meenu Goel vs ITO (supra) following the decision of Jurisdictional Hon'ble P&H High Court in the case of Pr.CIT vs Prem Pal Gandhi (supra) deleted the similar addition. Therefore, the issue is covered in favour of the assessee by the order of ITAT, Delhi Bench in the case of Meenu Goel vs ITO (supra) followed by judgement of Jurisdictional P&H High Court which is binding. There is no other mate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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