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2019 (7) TMI 179

..... roker’s ledger. The transactions in listed shares took place through a registered share broker, namely M/s. Sosha Credit Pvt. Ltd. The purchase of shares was acquired through public offer by way of direct subscription in Initial Public offering. The sale of shares took place on screen based trading platform of Bombay Stock Exchange. The transaction was settled by making / receiving payment by account payee cheques through proper banking channel. The assessee had paid securities transaction tax (STT) on sale of shares. The transaction took place at the price prevailing on stock exchange on respective transaction dates and there is no adverse finding by the lower authorities in respect to the documents produced by the assessee to substantiate the sale of M/s GCM Securities Limited. D.R. except relying heavily on the orders of the lower authorities could not bring to our attention any material to show that the documents placed before us were sham, bogus or there was any factual infirmity therein. D.R. also could not controvert the ld. A.R’s submissions that the disallowance was made solely on the basis of the report of the Investigation Wing in the shares of M/s KAFL. D.R. .....

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..... and gone through the facts and circumstances of the case. We note that the assessee has purchased 6400 number of shares of GCM Securities Ltd. The assessee has purchased shares of ₹ 1,20,000/- (6400 x 18.75) vide Cheque No. 170916 dt. 20.03.2013 in the Initial Public Offer by the said company made in conformity with the provisions of the Companies Act, 1956 and SEBI regulations. The same transaction has been duly reflected in the assessee s ICICI Bank Account no. 107001503576. A copy of bank account for the period from 01.04.2012 to 31.03.2013 is found placed at Page 5 to 11 of paper book. We therefore note that the shares in question were acquired by the assessee by way of subscription made for equity shares, which were offered for subscription to the public at large by issue of prospectus. It was thus not a case where the shares were acquired through private placement where there could be an allegation for manipulation. We further note that the assessee has sold the shares through stock-broker, M/s. Sosha Credit Private Limited, a Member of the Bombay Stock Exchange, SEBI Registration No. INB010783430 and Trading Code No. 3076. We note that the assessee has sold 6400 nos. .....

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..... f M/s KAFL was bogus. From plain reading of the assessment order therefore we find that except for making reference to the material/report of M/s. KAFL, the AO did not bring on record any tangible material on the basis of which he could hold that the appellant s transaction in M/s GCM Securities Ltd was bogus or sham. We find that no enquiry let alone worthwhile enquiry was conducted by the AO before drawing adverse inference against the appellant. We also note that even though the shares were sold through registered stock broker no attempt to make enquiries from the said broker was made by the AO but based on suspicion & surmise prompted by the material/report of Investigation Wing in transactions of M/s. KAFL, the AO presumed that the appellant s transactions in shares of M/s GCM Securities Limited was also bogus. We therefore find that there was no independent and objective application of mind by the AO in respect of the appellant s transactions in the shares of GCM Securities Limited and the ultimate disallowance was prompted solely based on the facts discussed by the AO in respect of transactions in M/s KAFL shares. 6. We also find that in the appellate proceedings, the Ld .....

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..... n the investigation report of the Department in the case of M/s KAFL much emphasis has been placed on the fact that the company s financials as well as net worth did not at all justify the prices at which the shares were transacted on stock exchange. With reference to the financial results of M/s KAFL as well as making reference to the financial track record as well as dividend declaration history, it was opined that the prices at which the shares were transacted were unreal, fictitious or manipulated. At the time of hearing the Ld. AR placed before us the copy of the audited financial accounts of M/s GCM Securities Limited for the FY 2014-15. On scrutiny of these accounts we note that during the year under consideration the turnover of the assessee was ₹ 3,31,90,405/-. It was also noted that the profit disclosed by the company for the FY 2014-15 was ₹ 1,36,18,752/- which was more than 1266% in comparison to last year s profit of ₹ 10,75,155/-. In its Profit & Loss Account had made provision for tax of ₹ 29,06,964/-. The Ld. AR also drew our attention to the Schedule 2.10, which contained details of investments held by the company, which primarily consis .....

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..... t 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 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, .....

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..... High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the 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 AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO's conclusions are 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 .....

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