TMI Blog2019 (7) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. Accordingly, directed 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 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. 2665/Kol/2018 - - - Dated:- 3-7-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Appellant : Shri P.N. Keshari, FCA For the Respondent : Shri Sanjoy Mukherjee, Addl. CIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM This is appeal preferred by the assessee against the order of Ld. CIT(A) 6, Kolkata dated 30.10.2018 for Assessment Year 2013-14. 2. The main grievance of the assessee is against the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. However taking note of the report of the Investigation Wing, the AO ignored the documents filed by the assessee before him and was pleased to add the entire sale consideration of ₹ 14,34,300/- u/s 68 of the Act. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of AO. Aggrieved the assessee is before us. 6. After hearing both the parties and after carefully going through the records, we note that the assessee has purchased the shares through online (note through offline) of M/s. TTMLwhich is seen placed from the page 15 of the Paper Book. We note that the assessee has purchased this scrip through the broker M/s GCM Securities Ltd. which was registered with SEBI and member of the Bombay Stock Exchange. The contract note dated 29.03.2011 is found placed at page 15 of paper book wherein the assessee has purchased 800 shares @ ₹ 500 per share for ₹ 2,01,704/-. The payments have been made through banking channel of Indian Overseas Bank which is found placed at page 6 of the Paper Book. Demat statement A/c No. 10005610 of M/s Lohia Securities Ltd. for delivery of shares purchased seen placed at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scrip of M/s. TTML is not a bogus scrip. We note that in this case the Tribunal has held as under: 10. We have heard rival submissions and gone through the facts and circumstances of the case. First, we make it clear that as per the admitted facts enumerated in para 4 supra, both the assessment years before us are unabated assessments, since these assessment years were not pending before the AO on the date of search on 12.08.2015, so no addition can be made by the AO, without the aid of incriminating materials. With that background in mind, let us see whether there are any incriminating materials unearthed against the assessee during search, which can justify the addition made by the AO. In the said look-out, we note that the AO s assertion that incriminating 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater) is a general statement that M/s. TTML is a penny stock. However, we note that Shri Narendra Prabhudaya Sureka has attributed no knowledge about the beneficiaries and has put the entire blame on Shri Manish Baid, whose statement AO has not placed on record and so Shri Narendra Prabhudayal Sureka s statement in no way advances the case against the assessee, because Shri Narendra Prabhudayal Sureka is ignorant about any preferential share holders. So without any incriminating material against the assessee found during search in respect to shares of M/s. TTML, no addition can be made without incriminating material found during search. So, since both the AY s before us were not pending before AO on date of search, so without incriminating materials unearthed during search, no 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 sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 11. The Hon'ble Jurisdictional Calcutta High Court in ITA No. 661 of 2008 Commissioner of Income Tax vs.Veerprabhu Marketing Ltd. has also held as under: We agree with the view expressed by the Karnataka High Court that incriminating material is pre-requisite before power could have been exercised u/s 153(C) r.w Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD.CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed . 12. In a similar case M/s. Kurele Paper Mills Pvt. Ltd. addition was made by the AO (in sec. 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) 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus LTCG to the Preferential allottees and on the same breath again has said that the entire scheme has been managed and controlled by Shri Manish Baid. From the reply of shri sureka, it transpires that M/s. TTML is a running cloth Mill and there are still employees working in his factory and also he does not know personally about the preferential shareholders and conveniently has stated that one Shri Manish Baid has brought these shareholders from whom ₹ 7.50 cr. was collected and it was infused as capital into his company M/s. TTML. It is also noted that though Shri Narendra Prabhudayal Sureka has stated that he does not know any of the preferential allottees, we note that the AO has not made any attempt to get the statement of Shri Manish Baid on board, which would have thrown light as to whether the assessee had 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 ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate are available in paper book pages 70 -72. The assessee had paid the purchase consideration of ₹ 20,00,000/- vide account payee cheque issued upon Bank of India on 14/01/2010, which was cleared on 15/01/2010. Copy of Bank Statement is available at page enclosed at page-73 of the paper book. Such investment of ₹ 20,00,000/- made in M/s. TTML was duly reflected in the Balance Sheet of the assessee as on 31/03/2010. Copy of Balance Sheet and P L account is seen placed at pages 74-75 of the paper book. The shares were de-matted with NSDL and kept in the de-mat account opened with depository participatory M/s Eureka Stock Share Broking Services Limited (DPID: IN302105). Copy of De-mat request form is seen placed at page 76 of the paper book. The shares were released after completion of the lock-in period i.e. after 25/01/2011 and 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, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pancy about the documents which were produced to establish the genuineness of the share transaction. Before us the Ld. AR submitted that the AO s show cause notice was replied denying any relation with the parties referred in the investigation report. Copy of the reply is found placed at pages 98 to 100 of the paper book. We note that the AO based on the general investigation report of the department discarded all the above evidences. Further the AO taking note of the price rise, high volume, low fundamentals etc. held that the share transaction as bogus. It was brought to our notice that the AO did not provide during the assessment proceedings, any copies of the material, investigation reports, statements purportedly recorded behind the back of the assessee to create a smoke screen of suspicion and doubt against the assessee. And AO based on third 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 exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as we had taken note has sold the equity shares of M/s. TTML as long term capital assets and received payment from the Bombay Stock Exchange through the SEBI registered broker M/s GCM Securities Limited. The AO, we note has not spelled out specifically any defects in the documents covering the transaction neither in the share allotment letter for acquisition nor in respect of contract notes for sale, bank statement showing payment for purchase receipt for sales, De-mat statement showing movement of shares, Balance Sheet reflecting investment corresponding booking of capital gains in the P L a/c for corresponding sale of shares in different years. It is trite that once the assessee has discharged its onus/primary liability, it will be AO's burden to bring on record any cogent material in support of the contrary contention that the transaction encompassing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditworthiness of payer 20. As explained, the transaction was made in the Bombay Stock Exchange through a SEBI registered broker. As per the established process, on execution of the ordered transaction, the exchange shall handover the payment to the broker and in turn the broker shall arrange for payment to the seller i.e. the assessee. In this case, M/s GCM Securities Limited, having SEBI registration no.INB 010793439, BSE membership no. 6250 had executed the transaction. Thus the identity of the broker is established from M/s. GCM Security Ltd. the broker. 21. From the records, the assessee received the sale consideration after sale of scrips of M/s. TTML Since M/s. GCM Securities Limited is a SEBI registered broker having membership both in NSE BSE, there cannot be any question about the worthiness of the same as the 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 genuinenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eading to ultimate destination of the cash which could have shed light on the assessee's connivance if he had indulged in the pre-planned sham transaction. Further, we note that the AO neither examined the broker nor the stock exchange authority or provide the referred report of the Investigation Wing to the assessee which was relied heavily while framing the assessment and prejudices the mind of AO. So, he brushed aside all the documents produced by the assessee without any reason. 26. The AO viewed that because of various adverse reports as well as unnatural price movement, the transactions made in M/s. TTML were bogus, the coordinate Bench of this Tribunal had occasion to deal with the issues raised for the shares of M/s. TTML in the case of Kiran Kothari. HUF vs. ITO, ITA No. 443/Kol/2017, where the shares were sold at a high price. Allowing the 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 transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the AO has failed to bring on record any material contained in the purported reports which are having so called adverse impact on the assessee. 9.3. In the light of the documents stated i.e. (i to v) in Page14(supra) we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fail. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/LD. CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumentary 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. 12. The Hon'ble High Court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 30. 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 the statement of a broker. The relevant part reads as under:- 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-examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit 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 the submissions. In view the above, we 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 High Court:- The Hon'ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by observing as follows:- 4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. v) 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 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 Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 32. The ld AR also brought to our notice that once the assessee has furnished all ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6] 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 upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit. 35. It is clear from the above that the facts of the case of the assessee are identical with the facts in the case of Kiran Kothari HUF (supra), wherein the co-ordinate bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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