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TMI Blog2019 (1) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from the broker M/s. Globe Capital Market Limited. The Assessing Officer observed from the computation of income filed by the assessee that the assessee has calculated the long term capital gain on sale of shares and claimed the same as exempt from taxation u/s10(38), the details of which as under :- Name of company Sale Price Purchase price Transfer expenses Exempt u/s 10 (38) Rs.2,37,03,710/- 15,80,000/- 2,21,23,710/- 3. On further examination of the share sale transactions made by the assessee during the year under consideration, the Assessing Officer found that the entire sale proceeds were received from sale of one scrip i.e. M/s. Kyra Landscapes Limited (Earlier named as M/s. TCL Technologies Ltd. when the shares were purchased and then as M/s. Aricent Infrastructure Ltd. at the time of sale) only. The assessee was asked to give details regarding when and how the shares were purchased and evidence in this respect. The assessee submitted that he has sold 1,58,033 shares during the year under consideration which were allotted to him on 29.12.2010 by TCS Technologies. The amount of Rs. 20.00 lacs was paid to TCL Technologies through RTGS on 21/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case that a company running since 1991 has not earned any income from operations ever and still commanded such premium valuations. He examined the balancesheet of the company and noted that the reasons of the astronomical price rise were located somewhere else and certainly could not be related to the fundamentals or any hypothetical promising future of the company by any stretch of imagination. He noted that the company had allotted total of 1,30,05,000 shares at Rs. 10 each on 29/12/2010 to 48 entities ( mostly individuals and including the assessee Sh. Sanjeev Jain) through preferential placement. All these shares were locked in for trading till 28/12/2011. The shares of the company were very scarcely traded in the past but all of a sudden after the lock in period for preferentially allotted shares ended, the price and volume became disproportionate to its real financial position. 6. He observed that during most of the period between16/12/2010 till beginning of March, 2012, the trade volume remained very thin. In fact from 17/06/2010 till 08/07/2011 the trade volume was only 100 shares per instance that too in one trade per instance (there were total 45 instances during this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bh Chandrakant Nagarseth accepted that he allowed his Demat account to be used for providing accommodation entries for bogus LTCG/STCG. His statement recorded during survey action was reproduced by the Assessing Officer in the body of the Assessment Order. He also issued commission to the investigation wing, Thane to examine some of the buyers of the scrip to ascertain whether these entities had the required sources to buy the scrip. The commissioned office reported that the buying parties were either bogus or had no explanation to offer in respect of the source of investment made by them. The Assessing Officer, therefore, concluded that the share price movements and sale purchase transactions were not genuine and were result of meticulously planned circular trading and the entities involved in these were part of this exercise in an effort to create documentary evidences for a pre-planned scheme for converting unaccounted money into tax exempt income. The Assessing Officer, thereafter, summoned the assessee u/s 131 of the IT Act and recorded his statement which has been reproduced in the body of the assessment order from page 40 to 50. 10. The Assessing Officer obtained informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STT at the prevalent market rates, therefore sale transactions were also genuine. The contention of the assessee was examined. It is not the case of this office whether purchase of shares through preferential placement did actually took place or shares were sold on the exchange at the prevalent market rates after paying STT or not. What this office has come to conclude on the basis of above analysis, documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities is that what is apparent in this case is not real, that these financial transactions were sham ones and that this entire edifice was only a colourable device used to evade tax." 13. Relying on various decisions including the decisions of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT reported 214 ITR 801 and the decision in the case Durga Prasad More Vs. CIT the Assessing Officer held that the assessee has introduced/ credited his capital of Rs. 2,36,97,101/- which attracts the provision of section 68 of the IT Act. The relevant observation of the Assessing Officer at para 3.8.10 and 4 of the order reads as under :- "The detailed analysis of evidences available on record and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. It has been noted by the AO when the appellant purchased these shares @ Rs. 10 - each, the market price of the script v;f.s 50 Paisa each. The price of the script jumped Rs. 125/- each share after March, 2012. it has been noted by the AO that M/s TCL which is running since 1994 has not earned any income from operations and still commanded such huge price in the market. The AO has referred to the financial results of TCL for various financial years before making such observations. The price of the script has increased from Rs. 0.5 per share to Rs. 154.65 in just 18 months from 16-12-2010 to 17- 07-2012. As soon as lock-in period of one year from the date of preferential allotment finished by first week of March, 2012, there was abnormal increase in volume and price of the script, thus, making way for the preferential share holders to make exit by taking away huge exempt long term capital gain. Such abrupt increase was not in any proportion with the changes in SENSEX index. These facts led the AO to conclude that price of the script has been rigged. The AO has ;aade further analysis of the trading data of the script by observing that number of persons purchasing/dealing in the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the above grounds of appeal have been gone through. It is noted that the appellant has purchased preferential shares of TCL Technology on 21-12-2010 @ Rs. 10/- each and the same have been sold during assessment year 2012-13 @ varying from Rs. 98/- to Rs. 160/- per share for a total consideration of Rs. 2.37 crore. It has been observed by the AO in the assessment order that price of shares of TCL Technology have increased manifold time with effect from March, 2012 as soon as the mandatory lock-in period of one year from the date of purchase of preferential shares had expired. Such abnormal increase in the price of shares of TCL Technology has been more than 8500%. This was the period which has availed by the appellant to book exempt long term capital gain. On the perusal of the financial results of TCL Technology it is noted that it has shown total income of Rs. 24 lac and Rs. 86 lac as on March, 2011 and March, 2012 respectively in the shape of other income with Nil turnover. Even as on March, 2013 it has shown total turnover of Rs. 5.56 crore with operating profit of Rs. 37 lac. In the balance sheet also the funds have only been put into loans and advances. Therefore, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough CASS being based on instructions issued by CBDT under section 119 of the Income Tax Act, 1961, hereinafter referred t: as "Act", was valid and on that basis upholding the validity of notice issued under : action 143(2) and the assessment order dated 30.03.2016 passed by the ITO, Ward -3t4 Saharanpur. 2. BECAUSE selection of case for scrutiny assessment, not being based on the opinion expressed by the Assessing Officer in due discharge of his judicial authority to do so, it deserved to be held that no notice under section 143(2) had been issued and the assessment order dated 30.03.2016 stated to have been passed under section 143(3) is wholly illegal. 3. BECAUSE owing to vital deficiency in the proceedings caused by non12 '"'Issuance of a valid notice under section 143(2) the CIT(A)" should have held that the addition of Rs. 2,36,97,101/- which was the only variation between the retuned income and 'assessed income' was wholly illegal and unauthorized too. WITHOUT PREJUDICE TO THE AFORESAID 4. BECAUSE the "CIT(A)" has erred in law and on facts in holding that the appellant had not discharged the onus cast upon him" in the matter of explaining the "su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract notes issued by them and such contract notes not being found to be false, fabricated or non-existent even after independent enquiries made by the Assessing Officer, the consideration realised by the appellant could not have been treated differently than what had been shown by it. 9. BECAUSE in any case, addition made and sustained by the authorities below is wholly vitiated as the same is solely based on extraneous consideration/presumption of bad faith, which is not permissible in law. 10. BECAUSE the case laws referred to and relied upon by "CIT(A)", while upholding the addition of Rs. 2,36,97,101/- are wholly distinguishable on facts and the inference drawn on the basis of such case laws, cannot be sustained either on facts or in law. 11. BECASE the order appealed against is contrary to the facts, law and principles of natural justice. 16. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the assessee invested Rs. 20 lakh through RTGS on 21.12.2010 from his S/B account maintained with Shivalik Mercantile Co-operative Bank Ltd. in 2 lakh equity shares of 10 each of M/s TCL Technologies Ltd. (a listed company) und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thirdly share prices of all the scrips are closely monitored by the Stock Exchange and SEBI; and lastly even if prices have gone up artificially (as alleged) there is no material to hold that assessee was involved therein. 15.1 In relation to statement of Shri Saurabh Chandrakant Nagarsheth dt. 09.06.2015, he submitted that said statement does not refer to his dealing in the shares of M/s Aricent Infra Ltd. or to the assessee's transaction, therefore, said statement is not relevant for deriving any positive or negative inference at all. In any case, in spite of specific request cross-examination was not allowed to the assessee. Referring to various decisions he submitted that non granting of cross examination request by the assessee violates principles of natural justice and addition based on such material renders the addition void and illegal. 15.2 Referring to pg. 121-199 of the paper book being the enquiries as were made by the Assessing Officer from various entities i.e. assessee's banker, depository, broker and even the banker of the TCL Technologies Ltd. etc. he submitted that nothing adverse was found. Therefore, on a due consideration of outcome of inquiry made, AO was wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70/LKW/2011 (Lucknow) 22. Tekchand Rambhiya HUF Vs. ITO ITA No. 960/Mum/2012 23. DCIT Vs. Sunita Khemka ITA No.714 to 718/kol/2011 24. ACIT Vs. Pradeep Kumar Aggarwal reported [2016] 159 ITD 54 (Chandigarh-Trib.) 25. Hon'ble ITAT Mumbai in the case of Farrah Marker Vs. ITO [Mumbai ITAT] 26. ITO Vs. Indravadan Jain HUF [2016] 47 CCH 0303 MumTrib 27. ACIT Vs. Shri Ziauddin A Siddque, ITA No.5182 & 5183/Mum/2011 28. Shri Pratik Suryakant Shah & Ors. Vs. ITO ITA No.810 to 815 & 922 to 926 /Ahd/2015 29. Dolarrai Hemani Kolkata Vs. ITO 30. ACIT Vs. Vineet Sureshchandra Agarwal [2017] 49 CCH 0003 Ahd Trib 31. Shri Sunil Prakash Vs. ACIT ITA No.6494/Mum/2014 32. Smt. Sunita Jain 7 Ors. Vs. ITO ITA No.501 & 502 /Ahd/2016 33. Kamla Devi S. Doshi & Ors. Vs. ITO & Ors. [ 2017] CCH 0053 Mum Trib. 34. CIT Vs. Rajeev Sharma [ 2011] 336 ITR 678 35. Obeetee Pvt. Ltd. Vs. Dy. CIT (ITAT Lucknow Bench) 36. Nanoomal Gupta Vs. ACIT (ITAT Agra Bench) 37. Pramod Jain & Ors. Vs. Dy. CIT Ors. (ITAT Jaipur) 38. Meenu Goel Vs. ITO (ITAT Delhi) 39. Dr. Ramprasad Aggarwal Vs. ITO vide ITA No.4843/M/2018 order dated 30.11.2018(Mumbai -D- Bench) 40. Soubhit Goel (HUF) Vs. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh Shah (supra) is concerned, he submitted that in this case, payment for purchase of shares was not made by cheque but claimed to have been adjusted against speculation profit and balance amount in cash. Further, purchase of shares could not be cross verified by the Assessing Officer and shares were D-mated just prior to sale thereof. Thus onus to produce necessary evidences to connivance that the shares were purchased and sold at prices claimed was not discharged by the assessee. It was under such circumstances, appeal of the assessee was dismissed by the Tribunal. 18.4. So far as the decision in the case of Ratnakar M. Pujari (supra) is concerned, he submitted that in this case apart from various other discrepancies, purchase of shares was made in cash, assessee was not a regular investor in shares and purchase of shares was treated as bogus even in earlier year i.e. A.Y. 2005-06 and the said finding has attained finality. However, in the present case, no such infirmity has been found or pointed out by the Assessing Officer. 18.5. So far as the decision in the case of Smt. M. K Rajeshwari is concerned. He submitted that the assessee did not purchase shares directly from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced before him. Therefore, according to him merely on the basis of suspicion and surmise, no addition can be made u/s 68 of the IT Act. 20. We find some force in the arguments advanced by the Ld. Counsel for the assessee. It is an admitted fact that 2,00,000 equity shares of Rs. 10/- each of M/s. TCL Technology Limited were purchased by the assessee for Rs. 20 lac which were paid through RTGS on 21.12.2010 from his savings bank account maintained with Shivalik Mercantile Co-operative Bank Limited. The shares were duly credited to the D-mat account of the assessee and on being enquired by the Assessing Officer it was duly confirmed by the depository that the sales are out of the shares so held in the D-mat account. We find the assessee has sold 1,58,033 shares from Rs. 98 to Rs. 160/- during the period from May 2012 to October, 2012 through on line trading through a registered stock broker namely Globe Capital Market Limited. There is also no dispute to the fact that the sale proceeds of the shares were credited in the bank account of the assessee after deducting STT, brokerage and other incidental charges. Under these circumstances the question that arises is as to whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 69 of the Income Tax Act, 1961. The Appeal filed by the Assessee was dismissed by CIT (A). 5 On further Appeal, the ITAT by the impugned order allowed the claim of the assessee by recording that the purchase of shares during the year 1999-2000 and 2000-2001 were duly recorded in the books maintained by the Assessee. The ITAT has recorded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6 Similarly, the sale of the said shares for Rs. 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case. 11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has risen from Rs. 5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share, then how it can be inferred that such person entered into sham transaction few years ago and prepared for getting the benefit after few years when the share will start rising steeply. In present case even there was no reason for such suspicion when the shares were purchased years before the unusual fluctuation in the share price. Here in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he broker's code. As regards service-tax and stamp charges the contract note of the broker clearly mentioned that the brokerage was inclusive of service tax etc. In the case of the selling broker the Service tax Securities Transaction tax and Education Cess were separately mentioned. As regards the point raised by the Assessing Officer that there was absence of broker-client agreement, the Tribunal accepted the submission of the assessee that the genuineness of the transactions was already proved by the contract notes for sale and purchase, the bank statement of the broker, the Demat Account showing transfer in and out of shares, as also abstract of transactions furnished by the CSE. The Tribunal, after appreciating the evidence on record, concurred with the findings recorded by the Commissioner (Appeals) that the assessee had furnished complete details which were not found false or bogus by the Assessing Officer and that it was only on suspicion that the Assessing Officer had treated the capital gain declared by the assessee as unexplained cash credit under section 68 of the Act. In the light of the aforesaid findings of fact recorded by it, the Tribunal dismissed the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their value, where the facts themselves speak loud and clear, the Assessing Officer is justified to even draw an inference from the attendant circumstances ? (iv) Whether on the facts and in the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal has erred in law in upholding the order of the CIT(A) deleting the addition of Rs. 12,59,000 made by the AO on the basis of seized document on the grounds that the Assessing Officer has not pointed out as to how the figure of Rs. 12.59 lacs has worked out ignoring the fact that the assessee himself in his reply to the Assessing Officer had tried to explain the source of the receipts of Rs. 12,59,000/- instead of challenging the working out of the said figure by the Assessing Officer ? 3 . The first three questions of law raised in this ..speed are covered against the appellant by an order and judgment of a Division Bench of this Court dated 16.02.2017 in ITA-18-2017 titled as The Pr. Commissioner of Income Tax (Central), Ludhiana Sh. Hitesh Gandhi, Bhatti Colony, Chandigarh Road, Nawanshahar. 4 . The issue in short is this: The assessee purchased shares of a company during the assessment year 2006-2007 at ' 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on recognized stock exchange after payment of STT. The claim of the assessee for sale of shares has been supported by the documentary evidences which have not been rebutted by the authorities below. Whatever inquiry was conducted in the cases of other parties and statement recorded of several persons namely Sh. Anil Khemka, Sh. Sanjay Vohra and Sh. Bidyoot Sarkar as referred in the assessment order and the report of the Investigation Wing were not confronted to the assessee and above statements were also not subject to cross-examination on behalf of the assessee. Therefore, such evidences cannot be read in evidence against the assessee. The 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 Page I 24 IT A No.3035/Del/2018 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 making an addition. The evidence produced by the assessee listed above proves his case and the AO could not controvert the same by bringing on record any evidence. The evidence said to have been collected by the DIT (TNV.), Kolkata and the report is not produced before this Bench. 10. Inow discuss the case law on the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 tram., -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. (v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of2008[ (Cal HC) - In this case the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wehrein 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 surmise. However, it was held that the transactions of the shares are genuine. Therefore, we do not find there is any reason of the shares are genuine. Therefore, we do not find that there is any reason to hold appeal being ITA No. 620 of 2008 is dismissed." 8.5. We note that the Id. AR cited plethora of the case laws to bolster his cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gains that too without any evidences whatsoever. 9.2 It is also pertinent to note that the assessee and / or the stock broker M/s P Didwania & Co and Toshith Securities P Ltd., both registered share and stock brokers with Calcutta Stock Exchange had confirmed the transaction and have issued legally valid contract notes under the Law and such contract notes are available in pages 41-52 of the Paper Book. We find that the Hon'ble Calcutta High Court in the case of Pr CIT Vs Rungta Properties Private Limited ITAT No 105 of 2016 dated 8th May 2017 in a similar issue dismissed the appeal of the Department by making the following observations: (11) On the last point, the Tribunal held that the Assessing Officer had not brought on records any material to show that the transactions in shares of the company involved were false or fictitious. It is finding of the assessing officer that the scrips of this company was executed by a broker through cross deals and the broker was suspended for some time. It is assessee's contention on the other that even though there are allegations against the broker, but for that reason alone the assessee cannot be held liable. On this point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LPINE INVESTMENTS in ITA No. 620 of 2008 dated 26th August 2008 wherein the Hon'ble Court held as follows : It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the Tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transactions of share are genuine. Therefore, we do not find that there is any reason to hold that there is any substantial question of law involved in this matter. Hence, the appeal being ITA No. 620 of 2008 is dismissed. " 9.4. We also find that the various other case laws of Hon'ble Jurisdictional High Court and other case laws also relied upon by the Id AR and findings given thereon would apply to the facts of the instant case. The Id DR was not able to furnish any contrary cases to this effect. Hence we hold that the Id AO was not justified in assessing the sale proceeds of shares of SOICL as undisclosed income of the assessee u/s 68 of the Act and therefore we uphold the order of the Id CITA and dismiss the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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