TMI Blog2019 (4) TMI 1294X X X X Extracts X X X X X X X X Extracts X X X X ..... L as undisclosed income of the assessee u/s 68 of the Act. - Decided in favour of the assessee. - I.T.A. No.2363/Kol/2018 - - - Dated:- 3-4-2019 - Shri Aby. T. Varkey, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant : Shri M. D. Shah, AR For the Respondent : Shri Robin Choudhury, Addl. CIT- Sr. DR. ORDER PER M. BALAGANESH: This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -6, Kolkata [ in short ld CITA] in Appeal No.CIT(A), Kolkata-/10295/2016-17 dated 2.8.2018 against the order of assessment framed by Learned Income Tax Officer, Ward 22(4), Kolkata [in short the ld AO] u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) on 21.12.2016 for the Asst Year 2014-15. 2. Though the assessee had raised several grounds of appeal, the following common issues are involved in this appeal and the questions raised thereon are reframed as under:- 1. Whether on the facts and circumstances of the case, the ld CITA was justified in upholding the addition made by the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n off market. The copy of purchase bill and sale contract note was produced by the assessee before the ld AO. Notice u/s 133(6) of the Act was issued by the ld AO to examine the veracity of the purchase from M/s Needful Vincom Private Limited. The said notice was returned back with a postal remark Addressee moved / not known . Accordingly, the ld AO concluded that the purchase of shares as stated by the assessee to be bogus. Thereafter the ld AO proceeded to seek confirmation from the broker M/s SKP Securities Ltd about the share transactions which were duly complied with by the broker vide letter dated 29.11.2016. The ld AO observed that the assessee made abnormal gain within a short span of holding period of the shares. The price movement of the scrip in the short span raised doubts in the mind of the ld AO that profit earned by the assessee were beyond human probabilities. The ld AO therefore made a deeper study to ascertain whether the transactions were genuine investment transactions or sham / colourable device to convert the unaccounted cash into tax exempt income. The ld AO merely made general observations as under:- An investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on sale of shares of KAFL in the sum of ₹ 18,88,141/- as fictitious and denied the claim of exemption u/s 10(38) of the Act thereon. 4. On first appeal, the ld CIT(A) dismissed the grounds raised by the assessee against his claim of exemption u/s 10(38) of the Act and he also confirmed the additions made by the ld AO under section 68 of the Act by observing that the entire process of purchase in off market and selling at an inflated price is stage managed. Aggrieved, the assessee is in appeal before us. 5. We have heard the rival submissions and perused the materials available on record. We find that the ld AO had treated the purchase of shares from Needful Vincom Private Limited to be bogus. How can the same be treated as bogus when the assessee was allotted fresh 50000 shares in KAFL in lieu of shares held by him in CPAL pursuant to scheme of amalgamation, which was approved by the Hon ble Allahabad High Court. Moreover, the shares so allotted in KAFL were duly dematted by the assessee with the registered depository participant and thereafter the shares were sold through the online medium of stock exchange through a registered share broker. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing receipt of shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of SKP Securities 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 SKP Securities Ltd by account payee cheques. (ix) Demat statement showing delivery of shares of KAFL on sale of shares. (x) Assessee s computation, profit and loss account, Balance sheet as at 31.3.2014 along with investment schedule and capital gains statement. 5.2. It is also pertinent to note that the total sale consideration of shares of KAFL was ₹ 19,38,141/- and out of which,the ld AO had treated only a part of the sum of ₹ 18,88,141/- as fictitious , being the amount of long term capital gain claimed as exempt. The natural corollary to this would be that the ld AO accepts part of the consideration to the tune of ₹ 50,000/- to be genuine. This divergent stand taken by the ld AO is not sustainable in law. 5.3. We find that the issue under dispute has been the subject matter of adjudication by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 was not held to be bogus. The ld AR submitted that the evidences and documents furnished by the assessee were neither found to be false nor fabricated. The ld AR submitted that the ld AO doubted the genuineness of the sale transactions on the basis of various orders of SEBI and/or the Investigation Wing and the statements of various persons recorded by Investigation Wing in the cases of persons unconnected to the assessee. It was submitted that the ld AO disallowed the assessee s claim of LTCG on sale of shares of KAFL on suspicion and presumptions alone. It was submitted that the lower authorities have not brought any material or evidence on record to falsify the claim of the assessee or to hold that the share transactions were bogus. 5.2. The ld AR has shown that the three orders of SEBI and the report of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 it was the 28th AGM of KAFL which shows that the said company was incorporated for more than 28 years as on the end of the said financial year i.e. 2011-12. He concluded that in such circumstances, the merger of the two companies with KAFL could not be said to be a premeditated arrangement to give benefit of LTCG to beneficiaries. At least a gullible investor would be lured to make investment in such companies. 5.6. The ld AR also brought to our notice the Financials of KAFL reported in SEBI s interim order dated 29th March, 2016 to show that the Price Earnings Ratio (in short P/E ratio) of that Company increased to ₹ 4,065 in FY 2013-14 from Rs. Nil in the FY 2012-13. The ld AR stated that the conclusion drawn by ld AO that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 transactions in the secondary platform. In such a situation it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the ld 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 abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 there is no direct evidence against the assessee brought on record by ld AO to hold that the assessee introduced its own unaccounted money by way of bogus LTCG. The direct evidence as alleged by the ld AO to be the SEBI s orders is no evidence against the assessee for the reasons stated earlier. The ld AR submitted that although various investigations were carried out by different agencies, there is no evidence against the assessee to hold that the assessee was a beneficiary to the modus operandi adopted by different entities / brokers / entry operators. The ld AR s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld 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 ld AO did not doubt the genuineness of the documents submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(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 [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) 5.13. The ld AR further submitted before us that once the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Agarwal Others ITA No. 247/(Kol) of 2011 (Kol ITAT) (iv) ITO vs. Bijaya Ganguly - ITA Nos. 624 625/Kol/2011 (Kol ITAT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speak of direct evidence. 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 assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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