TMI Blog2018 (12) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... TCG in issue We find that the revenue did not indicate any specific evidence against the assessee in above terms qua the LTCG derived from transfer of share in STIL. We therefore adopt the above extracted reasoning mutatis mutandis to delete the impugned bogus LTCG addition. Consequently the addition made towards unexplained expenditure on account of commission also stands automatically deleted - decided in favour of assessee. - I.T.A No. 2423/Kol/2017 - - - Dated:- 7-12-2018 - Shri M.Balaganesh, AM Hon ble Shri S.S.Viswanethra Ravi, JM For the Appellant : Shri A. Banerjee, Advocate, Shri V.K. Jain, FCA And Mrs. S. Mitra (Dutta) For the Respondent : Shri C. J. Singh, 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)-10, Kolkata [in short the ld CIT(A)] in Appeal No. 491/ITO, Ward-36(2),/CIT(A)-10/Kol/2016-17 dated 16.10.2017 against the order passed by the ITO, Ward-36(2), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 30.12.2016 for the Assessment Year 2014-15. 2. Though the assessee had raised var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exempt u/s 10(38) in the return of income to the tune of ₹ 96,36,783/-. The assessee submitted the complete evidences of purchase of shares made by the assessee and the sale contract notes together with the bank statements and demat statements before the ld AO evidencing the entire transactions being routed through regular disclosed bank account of the assessee. 4. The ld AO treated the long term capital gain on sale of shares of STIL as bogus on the ground that the said company does not deserve such a huge hike in sale price and accordingly disbelieved the market prices. The ld AO also alleged that the shares price was artificially rigged and manipulated beyond its normal pricing with connivance of share brokers and stock exchange with the guidance of various entry operators wherein the illegal money was converted into legal money in the form of long term capital gains. The ld AO accordingly brought the LTCG derived on sale of shares of STIL of ₹ 96,36,783/- as unexplained cash credit u/s 68 of the Act. The ld AO also made addition towards commission as unexplained expenditure at the rate of 0.5% on ₹ 96,36,783/- and made addition of ₹ 48,184/-. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the Long Term Capital Gain earned on sale of quoted equity shares of Trinity Tradelink Limited. The assessee answered the same by forwarding the relevant documents such as :- (i) Evidences of purchases and sales (ii) Demat statement (iii) Bank statement showing the transaction (iv) Contract Notes of share brokers i) Evidences of payment of Securities Transaction tax in Contract Note of Share Brokers j) Form No. 10DDB of Securities Transaction Tax Paid k) Details of shares and securities 5.3. The ld DR argued that the gains received on sale of shares of STIL should be taxed as business income as it is adventure in the nature of trade for the assessee herein in view of the fact that the assessee does not have any income from business and is having only salary income and income from other sources. We find that this aspect need not be gone into this case as the issue is already settled in favour of the assessee by the various co-ordinate bench decisions of this tribunal. We find that the ld DR could not controvert the findings recorded by the co-ordinate bench decision of this tribunal in assessee s favour in the case of Sanjay Mehta vs ACIT in ITA No.1089/Ko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er downloaded from BSE website is enclosed for your ready reference. I also enclose Unno Industries Ltd. letter dated 12th February, 2013 and 7th March, 2013 communicating the issuance of shares in lieu shares of Pinnacle Vintrade Ltd. upon sanction of scheme of arrangement by the Hon ble Court. Annexure II 5. As the equity shares of Pinnacle Vintrade ltd. purchased were not listed, hence no Contract Notes were issued. However, copy of bill indicating purchase of said equity shares is enclosed. Annexure III 6. Equity shares of Pinnacle Vintrade Ltd., were directly purchased from Uniglory Developers Pvt. Ltd. 209, Vireshwar Chambers, M.G. Road, Nera Shan Talkies Vile Parle (E), Mumbai, Maharashtra-400057. 7. Equity shares of Pinnacle Vintrade Ltd. were purchased in Physical Form. 8. I have three Demat Accounts as follows a) Name of DP- Ashika Stock Broking Ltd. (DP ID No. 12034500) Demat account No. 1203450000003128 Address of DP-Trinity, 7th Floor, 226/1, A.J.C. Bose Road, Kolkata-700020. DP Account opened on-31.08.2004 b) Name of DP- Guiness Securities Ltd. (DP ID No. IN302898) Demat account No. 10350406 Address of DP- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Out of sale consideration money of ₹ 3151423.00 from Unno Industries Ltd. a sum of ₹ 3150000.00 has been invested in equity shares of Glow Diam Designs Pvt. Ltd. All the evidences were attached as annexures as stated above. 6. The Assessing Officer in his order did not refer to any of these evidences. Instead at para 6 and 7 he concluded held as follows: 6. The details of purchase and sale of this particular scrip i.e. Unno Industries Ltd. (hereinafter referred as The Scrip) were examined in which shares were sold in June/August, 2013 at the price of ₹ 31,62,379/- and purchased ₹ 1,00,000/- i.e. a humongous rise of over 3100% over a very short period of just 24 months. These facts demanded a deeper study of the price movements and share market behavior of the entities involved in trade, of the scrip as the share price movements and the profit earned by the beneficiaries were beyond human probabilities. Thus a deeper study was needed to ascertain whether the transactions were genuine investment transaction of sham ones and colorable device only to convert the unaccounted cash into tax exempt. 7. Apart from this, the directorate of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis and that this resulted into unearthing of a huge syndicate of entry operators and share brokers and money lenders involved in providing of bogus accommodation entries. The report as the so-called project and the evidence collected by the DIT (Inv.), Kolkata etc have not been brought on record. It is well settled that any document relied upon by the AO for making an addition has to be supplied to the assessee and an opportunity should be provided to the assessee to rebut the same. In this case, general statements have been made by the AO and the addition is made based on such generalizations. The assessee has not been confronted with any of the evidence collected in the investigation done by the DIT(Inv.), Kolkata. Evidence collected from third parties cannot be used against the assessee without giving a copy of the same to the assessee and thereafter giving him an opportunity to rebut the same. 9. The AO further relies on the shop increase of 31000% of the value of shares over the period of 2 years. Though this is highly suspicious, it cannot take the place of evidence. The Hon'ble Supreme Court has stated that suspicion however strong cannot be the basis for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naged. 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 failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT(A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank 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. For coming to such a conclusion we r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in the contract note were not traded price on that particular date. The ld AO doubted the transactions due to the high rise in the stock price but for that, the assessee could not be blamed and there was no evidence to prove that the assessee or any one on his behalf was manipulating the stock prices. The stock exchange and SEBI are the authorities appointed by the Government of India to ensure that there is no stock rigging or manipulation. The ld AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee and or the brokers and or the Company. In absence of any evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is also to be seen that in this case, the shares were held by the Donors from 2003 and sold in 2010 thus there was a holding period of 7 years as per Section 49 of the Act and it cannot be said that the assessee and the Donors were making such plans for the last 7 years to rig the stock price to generate bogus capital gains that too without any evidences whatsoever. 9.2 It is also pertinent to note that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. 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 bona fide 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 ld CITA rightly relied on the decision of the Hon ble High Court at Calcutta in the case of ALPINE INVESTMENTS in ITA No. 620 of 2008 dated 26th August 2008 wherein the Hon ble Court held as follows: It appears that the share loss and the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 9. The ld. DR on the other hand, relied on the order of the assessing officer and reiterated the findings made therein and submitted that the same be upheld. He vehemently argued that merely because the assessee has produced all the evidences required to prove his claim, the same cannot be accepted as these are organized and managed transactions. He took this bench through the modus operandi mentioned by the AO and submitted that in all cases where the shares of these companies are purchased and sold, additions have to be made, irrespective of the evidence produced as there are cases where manipulation has taken place. He reiterated each and every observation and finding of the ld. AO as well as the Ld. CIT(A) and prayed that the same be upheld. 10. After careful consideration of the rival submissions, perusal of the papers on record and order of the lowers authorities below, as well as case law cited, we hold as follows. 11. The assessee in this case has stated the following facts and produced the following documents as evidences: 1. The assessee had made an application for allotment of 50000 equity shares of Smart champs IT and Infra Ltd. and she was allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Long Term Capital Gain the holding period is required to be 365 days. 12.The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to Modus Operandi of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of crossexamination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations should guide the authorities in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of legal import laid down by the Courts of law. 15. In our view, just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 17. The Hon ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon ble Court held: Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in State of M.P.v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of crossexamination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: 4. 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. 5. According to us, not allowing the Assessee to cross-examine the witnesses b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving its reasons for accepting or rejecting the submissions. 7. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLB CABLES CONDUCTORS[ITA No. 78 of2017] dated19.06.2018. The High Court held vide Para 4.1: we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. The Court also held the following vide Page 3 Para 5 the following: Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. d) The BENCH D OF KOLKATAITAT in the case of GAUTAM PINCHA [ITA No.569/Kol/2017]order dated 15.11.2017 held as under vide Page 12 Para 8.1: In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the Assessing Officer against the assessee, which in our considered opinion has no l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were 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 exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A). h)The Hon ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bona fide Long Term Capital Gainarising from the sale of shares and hence exempt from income tax. 21. Under the circumstances and in view of the above discussion, we uphold the contentions of the assessee and delete the addition in question. 7. We adopt all this reasoning mutatis mutandis to conclude in this factual backdrop that both the lower authorities have erred in treating assessee s LTCG to be bogus. The impugned addition(s) of ₹ 93,19,895/- and ₹ 4,65,995/- are deleted. 5.4. With regard to decisions relied upon by the ld DR, we hold that the co-ordinate bench of this tribunal in the aforesaid case had duly considered the several decisions of Hon ble Jurisdictional High Court as reproduced supra and accordingly the same would be binding on this tribunal. We find that the revenue did not indicate any specific evidence against the assessee in above terms qua the LTCG ..... X X X X Extracts X X X X X X X X Extracts X X X X
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