TMI Blog2019 (5) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri Robin Choudhury, ACIT, Sr. DR ORDER This is an appeal preferred by the Assessee against the order of Ld. CIT(A) 10, Kolkata dated 19.09.2018 for Assessment Year 2013-14. 2. Though the assessee has raised the legal issue against validity of reopening u/s. 147 read with 148 of the Income-tax Act, 1961 (hereinafter referred to as the Act ), I note that the addition is based on the Long Term Capital Gains claim of the assessee in respect of sale of scrip of M/s. Tuni Textile Mills Ltd. as exempt u/s. 10(38) of the Act which was held by AO to be bogus and that action of AO was confirmed by the Ld. CIT(A) on appeal of the assessee. Therefore this appeal of assessee before this Tribunal. 3. Briefly stated facts are that the assessee filed his return of income declaring total income of ₹ 8,11,164/-. The return was processed u/s. 143(1) of the Act and no scrutiny assessment was made. Thereafter, the AO issued notice u/s. 148 of the Act. The assessee is an individual who claimed LTCG to the tune of ₹ 28,93,483/- on sale of shares of M/s. Tuni Textiles Ltd. The AO reopened the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g material i.e. CJ-2 and CJ-13 were recovered during search which show that the assessee dealt with M/s. TTML which resulted in bogus LTCG, our opinion after examining carefully each documents which are placed from pages 32 to 69 are that they are nothing but bank statement, ledgers, accounts maintained by assessee of GCM securities[broker], ledger account of Bank of India, Burra Bazar Branch, contract notes of sale, summary of LTCG, Balance Sheet, Income Tax Return which documents according to us, can by no stretch of imagination be termed as incriminating material, rather we note that these were the very same documents the assessee had already disclosed before search and on the strength of which the assessee, in fact had claimed authentically to his transaction for claiming LTCG. So, we find that there is no incriminating material unearthed against the assessee during search as misunderstood by the AO and the Ld. CIT DR before us. Only other incriminating material according to Ld. DR before us is the statement of Shri Narendra Prabhudayal Sureka which has been recorded by the department. The AO has reproduced his statement in the assessment order itself. After carefully going thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition can be made as held by Hon ble Delhi High Court in Kabul Chawla (supra) wherein their Lordships held as under: Summary of legal position 37. On a conspectus of Section 153A(1) of the Act, read with provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the total income of the aforementioned six years in separate will be only one assessment order in respect of each of the six AYs in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 153A proceedings) without incriminating material unearthed during search, the share capital received by the assessee u/s. 68 of the Act was deleted by the Tribunal, which order has been upheld by Hon ble Delhi High Court in Pr. CIT Vs. Kurele Paper Mills Pvt. Ltd. (2016) 380 ITR 571 (Del) which decision has not been disturbed by the Hon ble Supreme Court (2016) 380 ITR (St.) 69-ed and was pleased to dismiss the SLP. 13. Before we part for completeness, we would like to analyze the statement of Shri Narendra Prabhudayal Sureka who according to revenue has given incriminating ocular evidence against the assessee in-respect of scrips of M/s TTML. From the statement of Shri Narendra Prabhudayal Sureka it reveals that he is the Managing Director of M/s. TTML. His statement has been recorded on 02.06.2015 (before search which happened on 12.08.2015) (appeal paper pages 72 to 81). From a perusal of the statement of Shri Narendra Prabhudayal Sureka we note that his company M/s. TTML was not a fly by night company. It has a running factory which is situated at B4/5, MIDC, Murbad, Thane and he was the Managing Director of the company since 06.07.1987 and this company was li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any contact with Mr. Manish Baid who is supposed to have been main player, and would have cleared the air of suspicion. We note that the assessee has been allotted preferential shares vide letter dated 27.01.2010 of ₹ 2 lacs vide company s share certificate dated 25.01.2010 which though casts doubt, but it cannot be the sole basis for terming the entire claim of assessee as bogus or that assessee s money was laundered in the modus operandi as suggested by the department, because as per his statement shri sureka when he was facing financial crisis went to shri Manish Baid and sought his help to raise the funds and by that process ₹ 7.50 crores was collected by allotment of shares and that fund was infused as capital into his company M/s TTML and then M/s TTML was again listed in BSE. Thereafter, the share value purchased by assessee for ₹ 10/- per share started rising, which according to shri Sureka was as per the scheme and plan of shri Baid and inorder to riggle out of the question how the price of shares of M/s TTML suddenly rose to astronomical price has put the blame on shri Baid. So, if shri Sureka has to be believed, then it turns out that he was an accomp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter the assessee sold some of his holding through the Bombay Stock Exchange at various dates from 02/02/2011 through SEBI registered broker (No. INB 010793439), M/s GCM Securities Limited (BSE Code 6250). In this process 1,09,000 shares were sold till 30/03/2011 against contract notes, for total consideration of ₹ 2,46,83,694, which was inclusive of Security Transaction Tax (SIT) of ₹ 35,523. Copy of contract notes evidencing sale of shares are found placed at pages 77-85 of paper book. We note that the assessee received the money into his bank account maintained with Bank of India within the time period as prescribed under Stock Exchange Regulations and the copy of Bank Statement reflecting receipt is available at pages 86-91 of paper book. We note that the shares were debited in the de-mat account in various dates as per the various dates in consonance with the contract notes. Copy of De-mat transaction statement is found placed at paper book page 92. Since assessee purchased shares of this scrips of 1,09,000 at ₹ 10,90,000 and sold the shares for ₹ 2,46,83,694, he made a capital gain of ₹ 2,35,93,694. Copy of long term capital gain statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird party evidence which were not supplied to the assessee brushed aside the aforesaid documents which substantiated the LTCG and held the transaction to be bogus, which according to Ld. AR, is not fair just and reasonable and so wants the claim of assessee allowed as done in similar case. 15. We note that for claiming exemption u/ s 10(38) of Act three requirement needs to be fulfilled. Firstly, the share purchased should be held for more than 1 year. Secondly the shares should be listed sold on recognized stock exchange. Thirdly on the said sale, necessary security transaction tax (STT) has been paid. In the present case, the shares of M/s. TTML was acquired by assessee on 25/01/2010 from the Company on preferential basis. After the lock-in period of one year, the shares were placed in the De-mat Account. Some shares were sold in BSE on various dates starting from 02/02/2011 onwards after payment of all statutory levies including STT brokerage. Thus, after the shares were held for more than 1 year, the same was sold on recognized stock exchange and necessary STT paid. Hence the assessee is legally eligible to avail the exemption u/s. 10(38) of the Act and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpassing the sale was sham. However, in the background of the facts discussed above, the AO failed to bring on record any material to substantiate the fact that the share transaction in question was bogus. The statement of Shri Narendra Prabhudayal Sureka to the department/investigation wing reproduced in the assessment order might show their complicity in indulging in the nefarious activity of providing accommodation entry for beneficiaries to claim LTCG on sale of shares of M/s. TTML, but these are general statements explaining the modus operandi and few names but the department has not brought out any direct statement of this person to implicate the assessee as an accomplice in their purported stage managed illegal activity. Without which we are afraid we cannot justify the action of AO/Ld. CIT(A). In this respect, we take note of the observation made by the Coordinate bench of this Tribunal in the case of Navneet Agarwal Vs. ITO, Kolkata, ITA No. 2281/Kol/2017 dated 20.07.2018: 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, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is covered under the KYC norms of the exchanges. It is noted that the broker had all along complied with the requirement to maintain the margin money as per Exchange norms and SEBI had never put any restriction on M/s. GCM Securities Limited for capital market operations. 22. To substantiate the genuineness of the transaction, the assessee had placed complete documents before the AO. In respect of acquisition of shares in M/s. TTML, the assessee submitted allotment letter of the company bank statement showing payment of ₹ 20,00,000/- as consideration. Such purchase was also reflected in the De-mat statement of the assessee as a genuine holder of shares. For sale, the assessee placed contract note issued by broker, bank statement showing receipt of consideration de-mat statement reflecting the movement of shares. In the balance sheet of the assessee, investments made in the shares of M/s. TTML were reflected and in the Profit Loss account, the LTCG as earned by the assessee, was disclosed. The AO has not found fault with the genuineness of such documents. In fact the sale transaction was executed through several independent bodies li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's appeal, the Tribunal held: 9. We have heard the rival submissions and perused the records. We note that in the present case, the appellant had purchased 13500 shares of M/s. Tuni Textile Mills Private Limited on 06.04.2011 from a stock broker in off-market transactions from M/s Badri Prasad Sons, who was a member of Calcutta Stock Exchange. These shares were held in the demat account of the assessee maintained with M/s. C. D Equisearch Pvt. Ltd, a member of Mumbai Stock Exchange and ultimately these shares were sold through M/s. C.D Equisearch and on such sale, Security Transaction Tax was duly paid. Payments were duly received in the bank account of the assessee. We take note that the purchase of shares by off-market transactions for purchase of shares is not illegal as was held by the Coordinate Bench of this Tribunal in the case of Dolarrai Hemani vs ITO in ITA NO. 19/Kol/2014 dated 02.12.2016. The transactions were all through a registered broker (pages 18 and 19 of the paper book), backed by a contract note (page 22 of the paper book) and shares were credited in the demat accounts (page 25 of the paper book) and duly reflected in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm 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) the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion howsoever strong, cannot partake the character of legal evidence. 27. Let us look at certain judicial decisions on similar facts:- 28. The case of the assessee s is similar to the decision of Hon ble Bombay High Court, Nagpur Bench in CIT vs. Smt. Jamnadevi Agrawal Ors. dated 23rd September, 2010 reported in (2010) 328 ITR 656 wherein it was held that: The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt of Rajasthan in CIT vs. Smt. Pushpa Malpani - reported in (2011) 242 CTR (Raj.) 559; (2011) 49 DTR 312 dismissed the appeal of department observing 'Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. Therefore, 'the prese/itdppeal does not raise any question of law, much less any substantial question of law. 29. The Hon ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299 ITR 0179 has held as under:- The Tribunal on the basis of the material on record, held that purchase contract note, contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- 14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal :- 6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders. 15. The Hon ble Apex Court held as under :- 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. 16. On the strength of the aforementioned decision of the Hon ble Supreme Court, the assessment order has to be quashed . 17. Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heques. The ld. AR has also submitted the IT return, ledger copy, letter to AO land PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely based on the information received by him. The appeal filed by the revenue was dismissed. vi) 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 evidence to suggest that the sale of shares by the Assessee were not genuine. vii) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT) 32. The ld AR also brought to our notice 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 directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Kiran Kothari HUF (supra), wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s TTML. So we, respectfully following the same, set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition. 36. The next issue in confirming the addition of ₹ 1,17,791/- as unexplained expenditure towards commission charges of sale of such shares by the operator. We have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently the addition of ₹ 1,17,791/- is hereby directed to be deleted. We accordingly hold that the issue is allowed in favour of the assessee. Respectfully following the decision cited supra, I set aside the order of Ld. CIT(A) and allow the claim of the assessee. Therefore, this ground of appeal of the assessee is allowed. 5. The next ground of appeal of assessee is against the action of Ld. CIT(A) in confirming the addition of ₹ 14,467/- being commission expenditure incurred. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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