TMI Blog2019 (6) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... e note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. Thus we set aside the order of CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition. - Decided in favour of assessee. Unexplained expenditure towards commission charges of sale of such shares by the operator - HELD THAT:- The transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently the addition is hereby directed to be deleted. We accordingly hold that the issue is allowed in favour of the assessee. - I.T.A. No. 113/Kol/2018 - - - Dated:- 3-6-2019 - Shri A. T. Varkey, JM And Shri M. Balaganesh, AM For the Appellant : Shri M. D. Shah, AR For the Respondent : Shri Robin Choudhury, Addl. CIT, Sr. DR ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not agree with the assessee s claim of LTCG and exemption thereof claimed by the assessee. According to AO, it is unbelievable that the assessee can make a fantastic gain in a span of 17 to 21 months of these scrips. According to AO, the price movement of the scrip in the span of 17 to 21 months raised doubts in his mind and that profit earned by the assessee were beyond human probabilities. The AO noticed that the company, M/s. CPAL, was incorporated on 18.09.2010 with authorized and paid up share capital of ₹ 1 lakh. The company increased its authorized share capital to ₹ 34.50 lakhs and thereafter issued 330155 shares of the face value of ₹ 10 each at the premium of ₹ 590 to different entities. The AO also observed that during the FY 2011-12, M/s. CPAL increased its authorized share capital to ₹ 29 crores and then the shares of ₹ 10 each were split into 1:10 i.e. each shares of ₹ 10 into shares of Re.1 each. The said company CPAL thereafter issued bonus shares to the existing equity shareholders in the ratio of 1:55. The AO suspected the issue of bonus shares in the unrealistic ratio of 1:55. He was of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of KAFL were rigged by the entities connected to KAFL. 6. The AO referred to three separate orders passed by SEBI dated 29th March, 2016, 15th June, 2016 and 31st October, 2016 in support of his adverse conclusions drawn against the assessee that several entities related/connected to KAFL rigged the prices by 230% during the period of January, 2013 to June, 2013 (Patch-1), created artificial demand and thereafter provided exit to the beneficiaries during the period of July 2013 to November, 2014 (Patch-2). The said orders passed by SEBI contained list of related/connected parties of KAFL and also the list of beneficiaries. Some of these were restrained from accessing the securities market and buying, selling or dealing in securities. The AO concluded that the in depth analysis done by SEBI in the three orders is direct evidence against the assessee to hold that the prices of KAFL were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL. The AO further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult in some other beneficiaries to claim huge losses. Thereafter, the AO discusses about the SEBI Report in respect of M/s. KAFL as well as the observations of the Special Investigation Team of the Hon ble Supreme Court and thereafter took an adverse view against the LTCG claim of the assessee on both the scrips of M/s. KAFL and M/s. EIL. 10. 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 AO under section 68 of the Act. Aggrieved, the assessee is in appeal before us. 11. We have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing it was brought to our notice by the Ld. AR that this Tribunal in the following cases have decided that the scrips of M/s KAFL are not bogus and held that the LTCG claim of the assessee need to be allowed: i) Manish Kumar Baid Vs. ACIT, ITA Nos. 1236 1237/Kol/2017 dated 18.08.2017 ii) Rukmini Devi Manpria Vs. DCIT, ITA No.1724/Kol/2017 dated 24.10.2018 iii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and other person who admitted the issue of providing entry, it is to submit that those statement / admission are subordinate material used only to support the main issue and no way a direct evidence. In the instant case the admission of the third party before the investigation wing can only be considered as circumstantial evidence and not a direct evidence. In support of his submission he referred to the following case laws: i) GTC Industries Ltd. Vs. ACIT (1998) 65 ITD 380 (Bom), ii) Sanjay Bimalchand Jain Vs. CIT-1, Nagpur (Three Members Nagpur Bench decision), iii) Smt. M. K. Rajeshwari Vs. ITO, Ward-3, Raichur, ITAT SMC-C Bench, Bangalore, iv) Usha Chandresh Shah Vs. ITO (ITA No. 6858/Mum/2011), v) ITA Nos. 1413 to 1420/CHNY/2018 dated 06.12.2018, vi) Mc. Dowell Co. Ltd. Vs. CTO (1983) 154 ITR 148, vii)Harsh Win Chaddha Vs. DCIT (ITA No. 3088 to 3038 3107/Del/2005, viii)Sumati Dayal Vs. CIT 214 ITR 801, ix) M/s. Durga Prasad More 82 ITR 540 13. He also submitted the alternate ground for addition that purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial evidences on record and merely relied on the orders of the lower authorities apart from placing the copy of SEBI s interim order supra. We find that the SEBI s orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in roder to have a good return on his investment. We find that the assessee and / or the broker Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI s order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvisory Limited was amalgamated with M/s. Kailash Auto Finance Limited by an order dated 21.05.2013 u/s. 391, 394 of the Companies Act, 1956 of Hon ble Allahabad High Court. By virtue of this amalgamation, the assessee was allotted 2,00,000 equity shares of M/s. Kailash Auto Finance Limited in lieu of 2,00,000 equity shares of M/s. Careful Projects Advisory Limited, as per order of the Hon ble High Court. In view of this order, shares of M/s. Careful Projects Advisory Limited got extinguished and shares of M/s. Kailash Auto Finance Limited were allotted and were credited to assessee s de mat account. Copy of their share bill dated 13.02.2012 is seen placed in the paper book page 3. We note that copy of de mat account from 01.04.2011 to 29.03.2012 was also produced before the authorities below and also placed in the paper book pages 7 to 16. We note that shares of M/s. Kailash Auto Finance were listed at BSE. Copy of De mat statement clearly reflecting debit of such shares from the account is found attached from page78 to 83 of PB. Copy of Bank Statement of HDFC Bank account highlighting the credit receipts received from the sale consideration is seen placed in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of M/s. EIL on 05.12.2013 on BSE through broker Sykes Ray Equities (I) Ltd. which is evident from paper book page 54 and 31,000 shares of M/s. EIL sold on 12.12.2013 on BSE through broker Sykes Ray Equities (I) Ltd. which is evident from paper book page 55. We also note that the assessee had purchased the shares through banking channel and sale consideration was received by A/c payee cheque, which facts are duly reflected in Bank statement which is placed at paper book page 5 6. Our attention was also drawn to the Contract notes of SEBI regd. Broker (Sykes Ray Equities (I) Ltd.) for sale of equity shares of M/s. EIL which is found placed at paper book pages 52-55. Thus, we note that the assessee had purchased the shares of M/s. EIL dematerialized the same and after holding it for more than 12 months had sold it through different transactions in the SEBI recognized Bombay Stock Exchange and the purchase and sale consideration were through bank accounts. 18. We further note that the assessee had filed the following documents to support his claim of LT CG on sale of shares of M/s. EIL. i) 100000 shares purchase documents of M/s. EIL on 23.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s EIL as bogus without bringing out adverse material specifically against the assessee. 20. The fact of holding the shares of M/s. KAFL M/s EIL in the D-mat account cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of Shri Sunil Dokani, and few others recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'prepondera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle- 3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t account has taken place through recognized stock exchange and assessee received money through banking channel. So, assessee has explained the nature and source of the money with supporting documents and thus has discharged the onus casted upon him by producing the relevant documents mentioned in para 15 (supra), accordingly, the question of treating the said gain as unexplained cash credit under section 68 of the Act cannot arise unless the AO is able to find fault/infirmity with the same. We note that the source of the receipt of the amount has been explained and the transaction in respect of which the said amount has been received by assessee has not been cancelled by the stock exchange/SEBI. So, it is difficult to countenance the action of AO/Ld. CIT(A) in the aforesaid facts and circumstances explained above. 24. Even assuming that the brokers may have done some manipulation then also the assessee cannot be held liable for the illegal action of the brokers when the entire transactions have been carried out through banking channels duly recorded in the Demat accounts with a Government depository and traded on the stock exchange unless specific evidence emerges t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the,bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.-Asstt. CIT vs. Kamal Kumar S. Agrawal (Indl.) Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818 affirmed; Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 80 Taxman 89 (SC) distinguished. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.- C. Vasantlal Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P H) 624 distinguished 29. The Co-ordinate Bench of Ahmedabad in ITA Nos. 501 502/Ahd/2016 had the occasion to consider a similar issue which was wherein the assessment was framed on the strength of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The other grievance of the assessee becomes infructuous. 30. The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016 and the decision by Hon ble Calcutta High court in PCIT Vs. BLB Cables Conductors Pvt. Ltd. in ITAT No. 78 of 2017 dated 19.06.2018 wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The following judgments of Hon ble Jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. iii)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. iv) 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal Others ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi Others vs. DCIT IT(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 X X X Extracts X X X X X X X X Extracts X X X X ..... l price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amita Agarwal Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT [2006] 6 SOT 247 (Mum) 34. We note that the ld. D.R. had heavily relied upon the decision of the Hon ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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