TMI Blog2018 (10) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of shares of KAFL. Accordingly, the grounds raised by the assessee are allowed. - I.T.A No. 1724/Kol/2017 - - - Dated:- 24-10-2018 - Shri A T Varkey, JM, Shri M.Balaganesh, AM For the Appellant : Shri Subash Agarwal, Advocate For the Respondent : Shri Robin Chowdhury, Addl. CIT Sr. DR ORDER Per M.Balaganesh, AM 1. This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-22, Kolkata [in short the ld CIT(A)] in Appeal No. 74/CIT(A)-22/Kol/14-15/16-17 dated 17.03.2017 against the order passed by the DCIT(IT), Circle-2(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 28.12.2016 for the Assessment Year 2014-15. 2. The only issue to be decided in all these appeals is as to whether the ld CITA was justified in upholding the addition made towards long term capital gains on sale of shares in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee filed her return of income for the Asst Year 2014-15 on 18.7.2014 declaring total income of ₹ 3,16,250/-. She is a nonresident Indian settled in United Kingd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was restrained from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever till further directions . The ld AO sought to treat the LTCG reported by the assessee as bogus as according to him, the scrip did not justify such a huge increase in its sale price and that the increase in share price thereon was only artificial and due to price rigging carried out by some persons in the market. He observed that the financials of the said company ( i.e KAFL ) did not justify such a huge increase in share prices and that prices have been artificially rigged upwards by some entry operators. He found that the returns obtained by the assessee , though from the open market, appears to be unrealistic and beyond human probabilities. Accordingly he held that the LTCG claimed as exempt in the sum of ₹ 74,86,600/- as bogus and added the same as unexplained cash credit u/s 68 of the Act and added the same to the total income of the assessee. This action was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 5. The ld AR placed reliance on the primary documents evidencing the purchase and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultimately he had purchased a flat utilizing the sale proceeds of those shares. This decision of Mumbai Tribunal was approved by the Hon ble Bombay High Court in the case of CIT vs Mukesh R Marolia in ITA No. 456 of 2007 dated 7.9.2011 wherein it was held as under:- 6. Similarly, the sale of the said shares for ₹ 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt Ltd and M/s Scorpio Management Consultants Pvt Ltd cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assessee nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s Richmond Securities Pvt Ltd, regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s Richmond Securities Pvt Ltd held that the sale transaction was genuine. 7. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2012 and the cheque got cleared on 16.2.2012 as is evident from his bank statement enclosed in the Paper Book. This investment is duly reflected in the books of the assessee together with other investments as on 31.3.2012 as under : 7.1. We find that the assessee had dematted the shares of CPAL on 23.2.2012 with M/s Eureka Stock Share Broking Services Ltd (Depository Participant DP in short). Pursuant to the merger of CPAL with KAFL, the assessee got 200000 shares in KAFL and the same were dematted with the same DP on 22.7.2013. The scheme of amalgamation of CPAL with KAFL was duly approved by the Hon ble Allahabad High Court on 21.5.2013. 7.2. There is no harm in shares being purchased in off market and this issue had been addressed by this tribunal in the case of Dolarrai Hemani vs ITO in ITA No. 19/Kol/2014 dated 2.12.2016. 7.3. We find that the assessee had sold these 200000 shares of KAFL, through the share broker (M/s Eureka Stock Share Broking Services Ltd NSDL) who is registered with SEBI and member of Bombay Stock Exchange, on various dates in Asst Year 2014-15 and the said sale is evidenced by the following documents :- a) Contract Notes issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... across the world. For these events, the documents are furnished by the stock brokers in the form of contract notes , delivery instructions submitted by the parties for effecting the sale through the recognized stock exchange and transactions of movement of shares from one person to another are recorded in the respective demat statements issued by the concerned Depository Participant. These documents cannot be disbelieved as not giving any credence to the share transactions as they had happened in the open market. In any case, it is for the revenue to bring out any other extraneous material to prove that these documents are fabricated with the connivance of assessee, registered stock broker and recognized stock exchange. It cannot be brushed aside that these transactions in the open market had duly suffered STT which is also reflected in the contract notes issued by the stock broker and the revenue had already been enriched by the STT component. Hence it would not be proper for the ld DR to state that these documents cannot be relied upon. 7.5. We find that the Hon ble Punjab Haryana High Court (non-jurisdictional high court) in the case of PCIT (Central), Ludhiana vs Prem Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that the CPAL was merged with KAFL by virtue of Court order and the assessee was allotted shares of KAFL as against the shares of CPAL in the ratio 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 through whom the assessee sold shares of KAFL in the FY 2013-14 relevant to the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s Ashika Stock Broking Ltd. by account payee cheques. (ix) Demat statement showing delivery of shares of KAFL on sale of shares. 5.1. The ld AR submitted that the purchase of shares in the FY 2011-12 was accepted by the ld AO. In the case of Sri Mahendra Kumar Baid the assessment order for the assessment year 2012-13 was passed under section 143(3) on 30th January, 2015 and the purchase of shares of CPAL was accepted. The assessment in the case of Manish Kumar Baid was processed under section 143(1) of the Act accepting the purchase of shares. The ld AR also submitted that even in the impugned assessment order the purchase of shares by the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiaries provided by these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd. 5.4. The ld AR, on the other hand, relied on the ad interim exparte order dated 29th March, 2016 passed by SEBI in favour of assessee. He drew our attention to Para 24 of the said order wherein SEBI found that some innocent and gullible investors had been lured into the trading of shares of KAFL and had been entrapped in the price fluctuation of the script. This finding of SEBI supports the case of the assessee. In this case, the assessee was lured to purchase shares of CPAL, when he knew that the company allotted bonus shares in the ratio of 1:55. The assessee sold the shares of KAFL when he found that the prices increased substantially in the market. The ld AR submitted that he being innocent gullible investor, his name did not appear in the list of SEBI who were named as beneficiary to the alleged scheme formulated by some persons. 5.5 The ld AR, in course of hearing before us, filed a copy of the audited financials of KAFL for the FY 2012-13 and drew our attention to the Notice convening the AGM. He submitted that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The ld. AR also referred to the statements of various other persons annexed with the Assessment order to show that none of the said persons named the assessee to have been benefitted by them in respect of LTCG claimed by the assessee. The ld AR submitted that the ld AO was unjustified in drawing an adverse inference against the assessee on the basis of his enquiry made from BSE to find out the names of buyers who ultimately bought the shares sold by the assessee. On the basis of such enquiry, the ld AO prepared a cash trail to allege that cash deposited in 5th or 6th layer were the unaccounted income of the assessee. It was his submission that the assessee did not know the names of the buyers and has no connection and/or relations with any such persons. The transactions of sale of shares were online trading system through his broker from whom he received the sale consideration. The broker also receives payments for all his transactions from Stock 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rib.)(SB) The Tribunal observed as under: 46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. 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 GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis 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 favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee . 5.10. The ld AR submitted that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The High Court held that the transactions were at the prevailing price and therefore the suspicion of the ld 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 basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive. (iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) In this case the Hon ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no 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 Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal Others ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi Others vs. DCIT IT(SS))A Nos. 22-26/Kol/2p11 (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 (Pune ITAT) (x) CIT vs. Sudeep Goenka [2013] 29 taxmann.com 402 (Allahabad HC) (xi) CIT vs. Udit Narain Agarwal [2013] 29 taxmann.com 76 (Allahabad HC) (xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil [2014] 41 taxmann.com 425 (Gujarat HC) (xiv) CIT vs. Maheshchandra G. Vakil [2013] 40 taxmann.com 326 (Gujarat HC) (xv) CIT vs. Sumitra Devi [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal Others - ITA Nos. 247/(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 ld AR also submitted that the ld AO was not justified in disallowing the assessee s claim of exemption under section 10(38) of the Act by concluding that the transactions of the assessee resulting in LTCG on sale of shares of KAFL were bogus relying on the statements of various persons recorded by Investigation Wing wherein these persons accepted to have provided accommodation entries of various natures including LTCG to different persons. The ld AR submitted that in the statement of third parties, the name of the assessee was not implicated. Even otherwise, no adverse inference could be taken against the assessee on the basis of untested statements without allowing opportunity of cross-examination. The ld 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/Agr/2009 (Agra ITAT) (iii) ACIT vs. Amita Aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 10(38) of the Act be allowed to the assessee. 6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the ld AR that the ld AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgement 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 ld 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 principles laid down in various case laws relied upon by the ld AR are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon ble High Court. The ld AO ought not to have questioned the validity of the amalgamation scheme approved by the Hon ble High Court in May 2013 merely based on a statement given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The enquiry by the Investigation Wing and/or the statements of several persons recorded by 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 form 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 ld AO 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 ld AO was not justified in rejecting the assessee 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 ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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