TMI Blog2018 (12) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account. - decided in favour of assessee. - ITA No.4843/M/2018 And ITA No.1228/M/2018 - - - Dated:- 30-11-2018 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Assessee : Shri Neel Khandelwal, A.R. For The Revenue : Shri Chaitanya Anjaria, D.R. ORDER Per Rajesh Kumar, Accountant Member: The above titled two appeals have been preferred by the assessee against the order dated 31.07.2018 15.12.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2013-14 2014- 15 respectively. ITA No.4843/M/2018 2. The grounds raised by the assessee are as under: 1. The Income tax Officer - 2(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) erred in issuing notice under section 148 of the Act. The appellant contends that on the facts and in the circumstances of the case and in law, the issue of notice under section 148 is without jurisdiction, bad in law and hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital gain on sale of long term shares of Rutron International Ltd. as non genuine and holding that exemption under section 10(38) of the Act was not allowable. 5. The facts in brief are that the assessee is director of M/s. Sudhir Switchgears P. Ltd. and earns income by way of salary from the said company, house property, other sources and long term capital gain. The assessee filed return of income on 27.03.2014 declaring income of ₹ 21,22,111/- which was processed under section 143(1). Thereafter, the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act after the AO received information from DGIT (Inv.), Kolkata vide letter dated 08.09.2016 that some companies were engaged in the business of issuing penny stocks for which there were large number of beneficiaries claiming bogus long term capital gain/short term capital loss/business loss/speculation loss. The AO, based on the said information, found that assessee is one of the beneficiaries of the said racket and had earned profit on sale of investments in equity shares of Rutron International Ltd. to the tune of ₹ 83,45,689/- and claimed the same as exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share plunged to ₹ 1. The whole modus operandi of this racket was unearthed upon a search and seizure operation under section 132 of the Act in the case of Shri Anil Agarwal. Shri Anil Agarwal is a director of M/s. Comfort Securities Ltd., a stock broker company registered with NSE, BSE, MCX, MCX-SX, NCDEX which is in the business of stock broking. Shri Anil Agarwal has been the operator and has been manipulating the prices of Rutron International Ltd. and he was also one of the directors of Rutron International Ltd also. In his statement recorded on 12.04.2015 under section 132(4) of the Act he said that M/s. Comfort Securities Ltd. a stock broking firm has helped various persons in obtaining accommodation entries in the form of LTCG and STCG. He stated that he has provided such entries in respect of shares of various companies namely Splash Media Infra Ltd., First Financial Services Ltd., D.B. (International) Stock Brokers Ltd., Unisys Softwares Holdings Industries Ltd. for providing bogus LTCG or STCG. Thereafter, the AO issued a show cause notice to the assessee which was replied by the assessee vide letter dated 16.12.2017. Thereafter, the AO brushed aside the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded the said amount to the total income of the assessee u/s 68 of the Act. The assessee is an individual and engaged in the business of retail sale of IMFL/Beer. A search u/s 132 of the Income Tax Act was conducted on 17.07.2013 in case of MRS Group of which the assessee belongs. In the Return of income filed in response to notice u/s 153A of the Act, the assessee declared total income ₹ 16,08,31,700/- including the income surrendered and declared by the assessee during the search and seizure action of ₹ 12,12,04,711/- as undisclosed income earned from business and profession. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of ₹ 1,32,56,113/- which is claimed as exempt u/s 10(38) of the Act on sale of shares of M/s Rutron International Ltd. The AO received information from Investigation Wing, Kolkata that during the search conducted u/s 132 of the Act on 12.04.2015 at the business premises of one Shri Anil Agarwal Group it was found that Shri Anil Agarwal isone of the promoters of M/s Rutron International Ltd. Further, it was unearth through search action that Shri Anil Agarwal through a number of private limited s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has based his assessment order and made addition on account of bogus long term capital gain. Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. Andaman timber Industries 127 DTR 241. The addition made by the AO is not sustainable. The ld. AR has submitted that the assessee was allotted 3,50,000/- equity shares by M/s Rutron International Ltd. on 01.03.2012 vide allotment letter dated 08.03.2012. The shares were allotted by the company at face value of ₹ 10/- each without charging any premium under preferential issue. He has referred to the bank statement of the assessee and submitted that the assessee paid the purchase consideration/ share application money vide cheque on 29.02.2012 the payment made by the assessee is duly reflected in the back statement of the assessee. Therefore, the assessee purchased shares in preferential allotment of the company and against the purchase consideration paid by the assessee through cheque. He has also referred to the D-mat account of the assessee and submitted that the shares were dematerialized on 18.06.2012 and thereafter the shares were sold from 13.03.2013 onwards on various dates through M/s Anand Rathi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment without any corroborating evidence brought by the Assessing Officer. 4. On the other hand, ld. DR has submitted that the assessee has shown a huge long term capital gain within a short period of one year from the sale of shares and therefore, as per the rule of preponderance of human probability the transaction of the assessee cannot be accepted as genuine and the onus is on the assessee to prove the same as how there is a spike in the price of the shares within such short duration. The surrounding circumstances clearly lead to only one possible conclusion that the assessee has manipulated the entire record and availed the bogus transaction of long term capital gain to convert his unaccounted income to avoid tax through long term capital gain. He has relied upon the decision of Hon'ble Bombay High Court in case of Sanjay Bimalchand Jain vs. Pr. CIT 89 taxaman.com 196. The ld. DR has then referred to the finding of the AO as well as ld. CIT(A) and submitted that when Sh. Anil Agarwal has clearly admitted in the statement that through his company he is engaged in providing bogus long term capital gain to the clients and M/s Rutron International Ltd. is one of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 1. First Financial Services Ltd. (FFSL) 2. Splash Media and Infra Ltd. ( SPMIL) 3. D B (International) stock Brokers Ltd. ( DBSBL) 4. Unisys Softwares Holdings Industries Ltd. (USHL) 5. Fact Enterprises Ltd. ( FEL) 6. Parikh Herbal Ltd. ( now Safal Herbs Ltd) 7. Premier Capital Service 8. Rutron Internationa Ltd. 9. Radford Global Ltd 10. JMD Telefilms Industries Ltd 11. Dhanleela Investments Trading Co. Ltd. 12. SRK Industries Ltd. 13. Dhenu Buildcon Infra ltd. Ans. M/s Comfort Securities Ltd. has business nexus with the following companies Name of the Company Nature of Business Transaction 1. First Financial Services Ltd. Brokerage and Consultancy Services 2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy Services 3. Fact Enterprises Ltd Broking as well as share holding 4. Rutron International Ltd. Consultancy Services 5. D.B. (International) Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. Further, Shir Anil Agrawal was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon'ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- 3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: 5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assesseecompany need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce Ind. Ltd., assessee's account with P.K. Agarwal co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant. In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account. Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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