TMI Blog2019 (1) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 1650/Kol/2018 - - - Dated:- 28-11-2018 - Shri S.S.Godara, JM Hon ble Shri M.Balaganesh, AM For the Appellant : Shri Subash Agarwal, Advocate For the Respondent : Shri Saurabh Kumar, 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)-10, Kolkata [in short the ld CIT(A)] in Appeal No.169/CIT(A)- 10/Wd-34(2)/14-15/2016-17/Kol dated 31.05.2018 against the order passed by ITO, Ward-34(2), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 29.12.2016 for the Assessment Year 2014-15. 2. Though the assessee had raised various grounds before us, the only effective issue involved in this appeal is as to whether the ld CITA was justified in confirming the addition made towards unexplained cash credit u/s 68 of the Act by treating the sale consideration of shares of Nikki Global Finance Ltd of ₹ 48,94,000/- and sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ₹ 47,23,065/- at prevailing market prices on various dates from 15.1.2014 to 27.3.2014 in 8 phases. Since the total cost of purchase for assessee was only ₹ 2,50,000/- , the proportionate cost of 71000 shares was worked out as under:- ₹ 250000 / 111000 shares * 71000 shares = ₹ 1,59,910/- The sale transactions of shares were effected in the stock exchange through a registered share broker after duly suffering STT. Hence the assessee claimed total long term capital gains as exempt u/s 10(38) in the return of income to the tune of ₹ 87,39,829/-. 4. The ld AO treated the sale consideration on sale of shares of aforesaid companies 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 these shares prices were 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 sale consideration received on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has erroneously recorded at para 3.1 that the assessee had purchased the shares of M/s. NFGL off market (not through established stock exchange) whereas the assessee had purchased the shares of M/s. NFGL through M/s. M. Prasad Co. Ltd. which is a recognized stock broker of Bombay Stock Exchange (BSE), through whom the assessee had made several investments in various scrips/shares and drew our attention to page 5 of paper book wherein the details of investment made by the assessee for the previous AY 2013-14 is given which shows that assessee has dealt with 30 nos. of different shares of companies including Reliance, Infosys, L T etc. and it was thus contended that this transaction with M/s. NFGL was not the single investment which assessee carried out through this broker. Thus, according to Ld. AR, the AO erred in finding that the assessee had purchased shares of M/s. NFGL in off market and not through established stock exchange. The Ld. AR drew our attention to page no. 6 of the paper book wherein we note that the assessee had purchased on 13.06.2012, 25000 shares at cost price of ₹ 128.25 of M/s. NFGL wherein the assessee had remitted STT of ₹ 4007.81 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the share broker pages 34 to 36 of the paper book. Following documents were filed before the authorities below in support of the sale of the shares: i) copy of contract note for sale of shares of M/s. NFGL page 7 to 17 of the paper book. ii) Copy of bank statement highlighting the receipt of sale consideration pages 20to 23 of paper book. iii) Copy of de mat holding statement and transaction of the statement which highlighting the movement of shares pages 24 to 33 of the paper book. 4. It was also pointed out by the Ld. AR that purchase of shares of M/s. NFGL in FY 2012-13 was duly recorded in the balance sheet and the return was processed by the department u/s. 143(1) of the Act thereby the department has accepted the purchase of shares of M/s. NFGL, however, when sales of the same scrips happened it was not accepted by the AO which action of the AO, according to Ld. AR, was unjustified and need to be set right. The Ld. AR further pointed out that the AO in his eagerness to somehow hold that transaction of M/s. NFGL bogus has erroneously made a factual finding that purchases of these shares happened off market when the fact was that the purchase of M/s. NFGL shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares were online trading system through his broker from whom he received the sale consideration. The broker also received payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as that of their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation according to ld AR, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert their unaccounted money of the beneficiaries as alleged by the AO. The ld AR referred to the judgement of Hon ble Bombay High Court in the case of CIT vs. Lavanya Land Pvt. Ltd. [2017] 83 taxmann.com 161 (Bom) to contend that there was no evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. In the said case, the Hon ble High Court at Para 21 held that in absence of any material to show that huge cash was transferred from one side to another, addition cannot be sustained. Similar view, according to Ld. AR, was taken in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusions 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 7. The ld AR submitted that there is no direct evidence against the assessee brought on record by AO to hold that the assessee introduced his own unaccounted money by way of bogus LTCG. The ld AR submitted that although various investigations were carried out by different agencies, there is no evidence against the assessee and/or the brokers and/or the Companies in which the assessee dealt with to hold that the assessee was a beneficiary to the modus operandi adopted by different entities / brokers / entry operators. The ld AR submitted that, in view of the aforesaid judgement of Special Bench of Mumbai Tribunal, various case laws relied on by the AO against the assessee are irrelevant in as much as the said orders are based on conclusions drawn on the basis of circumstantial evidences only without any material eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 Limited [ITA No. 105 of 2016] (Cal HC) In this case the Hon ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed. (v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) In this case the Hon ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta Others vs. ACIT ITA Nos. 4512 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 10. The ld AR further submitted before us that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out allowing opportunity of crossexamination. 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 Agarwal Others ITA No. 247/(Kol) of 2011 (Kol ITAT) (iv) ITO vs. Bijaya Ganguly - ITA Nos. 624 625/Kol/2011 (Kol ITAT) (v) Ganeshmull Bijay Singh Baid HUF vs. DCIT ITA Nos. 544/Kol/2013 (Kolkata ITAT) (vi) Rita Devi Others vs. DCIT IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vii) Malti Ghanshyambhai Patadia vs. ITO - ITA No.3400/Ahd/2015 (Ahmedabad ITAT) (viii) Pratik Suryakant Shah vs. ITO [2017] 77 taxmann.com 260 (Ahmedabad ITAT) (ix) Sunita Jain vs. ITO - ITA No. 201 502/Ahd/2016 (Ahmedabad ITAT) (x) Atul Kumar Khandelwal vs. DCIT ITA No. 874/Del/2016 (Delhi ITAT) (xi) Farah Marker vs. ITO ITA No. 3801/Mum/2011 (Mumbai ITAT) 13. The ld AR also submitted that the AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares are unexplained cash credits in the hands of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO erred in making the erroneous finding of the purchase value of the shares. We note that in this case the assessee was investing in different shares of the companies (30 different shares of companies ) as evident from perusal of page 5 of paper book and the purchase and sale of shares in M/s. NFGL is one among the 30 odd shares the assessee dealt with as an investment through a registered stock broker of Bombay Stock Exchange M. Prasad Co. Ltd. The assessee had purchased 25000 shares of M/s. NFGL on 13.06.2012 at a cost price of ₹ 128.25 per share and remitted Security Transaction Tax (STT) of ₹ 4007.81 and at a total cost price of ₹ 32,16,000/- (see contract note placed at page 6 of paper book). Thus we find that the AO erred in finding that the assessee had made the purchase not through Stock Exchange but it was an off market transaction. We find that the assessee had purchased through registered broker M/s. M. Prasad Co. who was registered stock broker of the Bombay Stock Exchange and on 13.06.2012 assessee purchased 25000 shares at ₹ 28.25 per share on which STT was paid and the total transaction of ₹ 32,21,213.10 was paid through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough account payee cheque. It was pointed out by the Ld. AR that when a show cause notice was given by the AO on 09.12.2016 wherein the assessee was asked to explain why the sale consideration of ₹ 2,16,49,202/- shall not be added back u/s. 68 of the Act as well as ₹ 10,82,460/- being 5% of the said sum be added u/s. 69C of the Act, the assessee promptly replied to it. The AO acknowledges that the assessee had replied vide letter dated 22.12.2016 which the AO has stated to have been placed on record. However, it was brought to our notice that the AO has not made any adverse finding in respect to the submissions made by the assessee in justifying the LTCG claim. It was brought to our notice that no attempt has been made by the AO to issue summons u/s. 131 or 133(6) of the Act to any of the parties involved in all these transactions to record any adverse inference against the assessee, and without doing so, the AO has simply concluded on the basis of the presumption and assumption and circumstantial evidence and on preponderance of probabilities has debunked the entire evidence submitted before the AO to saddle the entire sale consideration and to allege commission give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an accommodation provider against M/s. NFGL, then the AO in all fairness had to confront the assessee with the adverse material and given an opportunity to the assessee to meet it and the assessee should have been given an opportunity to explain it; and in case the assessee desires, she should have been allowed to cross examine the accommodation provider or else the adverse material cannot be acted upon to draw adverse inference against the assessee as held by the Hon ble Apex Court in Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3. It should be kept in mind that assessee cannot be kept in dark as to the material against her and it has to be given to the assessee if AO proposes to use it against the assessee and these are the basic natural justice principles the AO has to keep in mind while framing an assessment. Though AO/Ld. CIT(A) have been swayed by the report of SEBI/Investigation Wing of the department, both the authorities could not point out what was the role of the assessee in any wrong doing which is prohibited by law. We note that neither the purported adverse reports relied on by the AO has been brought on record nor is there any reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manipulated the stock price. It should be noted that the stock exchange of SEBI are the statutory authority appointed by the Government of India to ensure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the companies in question. In absence of any relevant evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is pertinent to note that the assessee has purchased the stocks through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued valid contract notes as per law; and the Hon ble Calcutta High Court 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 rely on the decision of the Hon ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows : It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the ..... 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