TMI Blog2019 (6) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... TTA HIGH COURT] 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.- Decided in favour of assessee. - I.T.A. No. 2381/Kol/2018 - - - Dated:- 7-6-2019 - Shri A. T. Varkey, JM For the Appellant : Shri Subash Agarwal, Advocate For the Respondent : Shri Rabin Choudhury, Addl. CIT, Sr. DR ORDER This appeal filed by assessee is against the order of Ld. CIT(A) - 6, Kolkata dated 16.10.2018 for AY 2015-16. 2. In this case the assessee has raised as many as seven grounds of appeal but the sole issue involved in this appeal of assessee relates to confirmation of the addition/disallowance by Ld. CIT(A) on account of Long Term Capital Gain of ₹ 21,96,793/- claimed by the assessee as exempt u/s. 10(38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Ltd. for ₹ 2,60,000. The relevant extract of Bank Account Statement was submitted to show that the said amount was paid by account payee cheque. The assessee also produced and filed the copy of the Demat account to show that the said 5,000 shares of M/s. CCL International Ltd. were credited in assessee's Demat account. The said 5,000 shares were sold through Vardhaman Capital Pvt Ltd, a registered share and stock broker. The assessee also produced and filed the copies of contract note in support of sale of 5,000 shares as aforesaid and also submitted relevant extract of his bank account statement to show that the sale consideration was credited to his bank account. It was also shown that the sales of those shares are reflected in the Demat statement of the assessee. The period of holding of such shares being more than 12 months was also brought to the notice of AO by the assessee from the aforesaid documentary evidences. 4. On perusal of the submission of the assessee, the AO found that the assessee had purchased scrip of M/s . CCL International Ltd. of 5,000 units. These were sold during the F.Y. 2014-15 having capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm Capital Loss to willing beneficiaries. So, according to AO, the above the long term capital gain claimed to be exempted u/s.10(38) of the Act amounting to ₹ 21,96,793/- is found to be fictitious claim of assessee and is nothing but assessee s income from other-sources brought back in his books in the form of exempted income. So, the AO issued show cause why not the above amount of ₹ 21,96,793/- as claimed to be exempted should not be added back to assessee s total income and taxed thereon. After considering the reply of the assessee, the AO observed that the assessee tried to prove the veracity of the said transactions but he failed to provide any reasonable explanation regarding the above facts of suspicious transaction of long term capital. In view of the above, the AO observed that the long term capital gain claimed to be exempted u/s. 10(38) of the Act amounting to ₹ 21,96,793/- was found to be fictitious claim on assessee s part is nothing but his income from other sources brought back in his books in the form of exempted income. So, the above amount of ₹ 21,96,793/- as claimed to be exempted was added back to the total income of the assessee by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Ltd. in 8th June, 2013 from M/s Goodshine Commerce Pvt. Ltd. for a consideration of ₹ 52 per share ₹ 2,60,000/- (Copy of the purchase bill is enclosed in the Paper Book at Page Number 13). It is taken note that the payment was made through an account payee cheque and copy of money receipt alognwith the bank statement evidencing the payment made to M/s Goodshine Commerce Pvt. Ltd. for such share purchase is enclosed in the Paper Book at Page Number 14 to 15 . It is taken note that the assessee lodged the said shares with the DP M/s. Vedika Securities Ltd. on 19.07.2013 (i.e. within a month 10 days). The said shares were subsequently dematerialized (copy of demat statement of enclosed in the Paper Book at Page Number 18).Thereafter it is noted that in the relevant year, the assessee had sold the shares at a consideration of ₹ 494.70 per share ₹ 24,56,793/- and remitting STT through M/s. Vardhaman Capital Ltd. which is a registered broker at the BSE and claimed Long Term Capital Gains of ₹ 21,96,793/-(Copy of contract notes in connection with sale of shares alongwith the bank statement reflecting the receipt of sale consideration is enclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we rely on the following cases: i. CIT vs Carbo Industries Hondings Ltd. 244 ITR 422 (Cal) ii. CIT vs Emerald Commercial Ltd. 250 ITR 539 (Cal) iii. Mukta Gupta vs ITO Mohan Lal Agarwal (HUF) vs ITO, ITA Nos. 2766- 2767/Del/18, order dated 26.11.2018 [Scrip Name CCL International Ltd. at page 1 to 12 of the compilation of judgment] 9. It was also brought to our notice that in a case decided by the Tribunal, Delhi Mukta Gupta vs ITO Mohan Lal Agarwal (HUF) vs ITO in ITA Nos. 2766-2767/DEL/2018 dated 26.11.2018 in AY 2014-15 wherein the assessee placed the assessment orders for AY 2013-14 and 2014-15 in the case of M/s. CCL International Ltd. passed u/s. 143(3) of the Act which goes on to show that the scrips of M/s. CCL International Ltd. cannot be called as bogus wherein it has been held as under: 8. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as mater referred to before us. As discussed above, assessee has purchased 10,000 shares on 11.05.2009 @ 16.30 per share for total amount of ₹ 1,63,000/- out of which ₹ 20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has been found to be beneficiary of any bogus or accommodation entry in any of the investigation/searches carried out anywhere; Secondly, there is no material that any action has been taken by the SEBI against this company and such an action of black-listing this company had attained finality and; Lastly, it is also matter of record that the Department in other cases under scrutiny proceedings has accepted similar transaction of sale of shares of M/s. CCL International Ltd. 10. Nowhere the evidences filed by the assessee has been rebutted or any inquiry whatsoever has been conducted by the Assessing Officer or by the ld. CIT(A) to prove that assessee was involved in any clandestine manner for routing its own unaccounted money. If the assessee has filed the entire evidences relating to purchase which is mostly through cheque shown in the earlier years and also filed all the details of sale transactions and the shares which have been routed through Demat account and sold through stock exchange on a quoted price on that date, then onus shifts upon the Department to prove that all these evidences are only make believe documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 third party 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 company to the assessee. 12. We note that the sale of shares of M/s. CCL International Ltd which was dematerlized in Demat account has taken place through recognised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that crossexamination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn. 18. In the light of the decisions of the Hon ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. 19. Accordingly, we direct the A.O. to treat the gains arising out of the sale of shares under the head capital gains- Short Term or Long Term as the case may be. The other grievance of the assessee becomes infructuous. 19. 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 acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 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 evidence. ii) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon ble High Court held that the opinion of 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 preva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed 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 documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 20. We 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. In support of the aforesaid su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing 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. (i) ITO vs. Ashok Kumar Bansal ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF ITYA No. 32/Agr/2007 (Agra ITAT) 22. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal 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 manipulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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