TMI Blog2019 (7) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... rwal [ 2018 (8) TMI 509 - ITAT KOLKATA] wherein the claim of LTCG for sale of shares of M/s. Cressenda Solutions Ltd. which was allowed by the Tribunal. Respectfully following the same, allow the claim of the assessee in respect of Long Term Capital Gain in respect of sale of shares of M/s. Cressanda Solutions Ltd and direct deletion of addition for AY 2015-16. Grounds of appeal of assessee challenging the addition made on this issue are allowed. - Appeals of assessee are allowed. - I.T.A. Nos. 2039 & 2377/Kol/2018 - - - Dated:- 10-7-2019 - Shri A. T. Varkey, JM For the Appellant : Shri Sunil Surana, FCA For the Respondent : Shri Sankar Halder, JCIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM These are appeals preferred by the assessee against the separate Orders of the CIT(A)-6, Kolkata dated 14.09.2018 for assessment year 2014-15 and dated 25.10.2018 for assessment year 2015-16. 2. Since the grounds of appeal for both the assessment years are identical and facts are also identical, I am inclined to pass this consolidated order for both the years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that date and however, acknowledges the fact that the Bombay Stock Exchange (hereinafter referred to as BSE ) had replied to the AO. Thereafter the AO brought to the notice of the assessee that an investigation was conducted by the Investigation Wing which revealed that 84 penny stock companies were involved with 32 share broking entities who were actively involved in providing bogus LTCG / STCL to the beneficiaries like assessee and these LTCG / STCL were nothing but the assessee s own money circulated through these dubious brokers and brought back as LTCG / STCL which are claimed as exempt income. According to the AO, the investigation brought out that initially the price of these shares started from a low range and it rises rapidly and price stays stagnant for some time and thereafter it decreases and falls down which resembles a trade pattern of a bell shape. According to the AO the Scrip of M/s CSL is one of the penny stock which has been banned by SEBI. Thereafter, he reproduces the chart which shows the price rise and falling of the Scrip of M/s CSL. According to the AO, it was found that these scrips (penny stocks) have no actual financial credentials to support their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the shares were held in the de mat account. All these documents according to Ld AR, were filed before the authorities below and drew our attention to page nos. 01 to 24 to prove the LTCG claim made by the assessee. The Ld. AR wondered as to how the Ld. CIT(A) ignored the aforesaid documents and without pointing out any fault in the said documents and has turned down the claim of the assessee which action, according to Ld. AR, is arbitrary and perverse. Ld. AR drew our attention to judicial precedents laid down by the Hon ble jurisdictional High Court as well as by Hon ble High Courts and Tribunal decisions in support of the claim made by the assessee wherein similar claim of LTCG has been upheld. The Ld. AR also drew our attention to the Coordinate Bench decision in Navneet Agarwal, L/H of Lt. Kiran Agarwal Vs. ITO, ITA No. 2281/Kol/2017 for AY 2014-15 dated 20.07.2018 wherein the Tribunal was pleased to uphold the LTCG claim of the assessee in respect of sale of scrips of M/s. Cressenda Solutions Ltd. as well as the decision in Suman Saraf Vs. ITO in ITA No. 1395/Kol/2018 dated 05.10.2018 wherein also the Tribunal upheld the LTCG claim of assessee in respect of M/s. Cressenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders of M/s. Smart Champs IT and Infra Ltd. Pursuant to the said scheme, the assessee received 10,000 shares of M/s. Cressanda Solutions Ltd. Thereafter on 15.01.2014, M/s. Cressanda Solutions Ltd. announced a stock split and sub-division of the ₹ 10 share into shares of ₹ 1 each. As on that date the assessee had 10,000 shares of face value of ₹ 10/- were converted into 1,00,000 shares. The details of the summary chart showing the details of the sale of share for AY 2014-15 is as under: Date of sales Quantity Rate Amount STT Service tax Net amount Date of receipt Amount 06/02/2014 18300 5395 987285 987 10980 986260 15/02/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout finding any fault with the documents filed have negated the claim based only on human probability and the Investigation Report that too which was not furnished to assessee. According to us, the non-furnishing of any material which is used by the AO to draw adverse view against the assessee itself is in violation of Natural Rights. In the light of the above facts, we also note that the same issue which is before us, arose in the case of an assessee named Shri Navneet Agarwal (supra) who also claimed LTCG for sale of shares of M/s. Cressenda Solutions Ltd. which was not accepted by the AO and the Ld. CIT(A), which action was assailed before this Tribunal and this Tribunal in ITA No. 2281/Kol/2017 was pleased to allow the LTCG claim of the assessee by holding as under: 2.The assessee had filed return of income on 16.07.2014 disclosing total income of ₹ 4,63,515/-. This was processed u/s. 143(1) of the Act and subsequently selected for scrutiny. The assessee had claimed exemption on income from long term capital gains of ₹ 2,18,13,073/-. This gain was earned from sale of fifty thousand shares of M/s Cressenda Solution Ltd., during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of these companies rise to very high level within a span of one year. iii. The trading volume of shares during the period, in which manipulations are done to raise the market price, is extremely thin. iv. Most of the purported investors are returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their shares. vi The sharp rise in market price of the shares of these entities is not supported byfundamentals of the company or any other genuine factors. vi. An analysis in respect of persons involved in transactions apparently carried out in order to jack up the share prices has been done in respect of 84 companies. It has been noted that many common persons/entities were involved in trading in more than 1 LTCG com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is direct evidence to clearly indicate that the entire transaction undertaken by the assesseewas merely an accommodation taken for the purpose of bogus longterm capital gains to claim exempt income. The authorities such as SEBI have after investigating such abnormal price increase of certain stocks, suspended certain scrips. c) The submissions of the assessee pointed out elaborate documentation such as: i) Application of shares. ii) Allotment of shares. iii) Share Certificates iv) Payment by cheques v) Filings before Registrar of Companies. vi) Proof of amalgamation of companies. vii) Copies of bank statement, viii) Bank contract notes. ix) Delivery instruction to the broker etc. d) The elaborate paper book is filed to strengthen the matter relevant to the bogus claim of LTCG, and this is clearly been schemed and pre-planned with malafide intention. Therefore, all these documents are not evidence. e) The transactions are unnatural and highly suspicious. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares, it is submitted that the ld. A.O. did not provide any documentary evidence of a live link and direct relation to such alleged rigging of prices with the assessee. Hence, no adverse inference could be drawn against the assessee in this regard. b. That the sale transactions in question had taken place in the stock exchange electronically, through a registered broker SKP Stock Broking Pvt. Ltd. (now Rely bulls Stock Broking Pvt. Ltd.). All such activity of purchase and sale on the platform of the stock exchange are logged in, on real time basis. It is not possible to sell / purchase the shares of any company on the stock exchange in variance to the prevailing market price at any point of time. Hence, the assessee cannot be, nor is supposed to be aware of and know the identity of the persons, who have sold the shares at the time of purchase of the shares by the assessee and purchaser of the shares at the time of sale of the said shares by the assessee at the Stock Exchange. c. It is further submitted that the share price is always determined by the market mechanism at any given point of time because there is a robust system of the stock exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and drawing an adverse inference without any admissible evidence on record, is bad in law, illegal, invalid and void-ab-initio. h. It is further submitted that investment in a company with weak fundamentals can be for several reasons such as professional advice, reasonable price per share, a foreseeable turnaround, past pricing and volume patterns and just market rumour about phenomenal movement in share price of a particular scrip. Moreover, the mere fact that the shares were sold at a high price cannot be termed as conclusive proof or a ground for an allegation that the assessee has converted some unaccounted money through accommodation entries as alleged by the A.O. in the assessment order. i. The Ld. A.O. in the assessment order relied upon the purported statements of various alleged operators on the basis of which the Ld. A.O. had drawn adverse inference in the instant case. It is worthy to note that nowhere any of them has ever named the assessee in the alleged manipulation. Further, the Ld. A.O. did not provide any opportunity to cross examine the said persons. It is a well-settled principle of law that no credence can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat merely because the assessee has produced all the evidences required to prove his claim, the same cannot be accepted as these are organized and managed transactions. He took this bench through the modus operandi mentioned by the AO and submitted that in all cases where the shares of these companies are purchased and sold, additions have to be made, irrespective of the evidence produced as there are cases where manipulation has taken place. He reiterated each and every observation and finding of the ld. AO as well as the Ld. CIT(A) and prayed that the same be upheld. 10. After careful consideration of the rival submissions, perusal of the papers on record and order of the lowers authorities below, as well as case law cited, we hold as follows. 11. The assessee in this case has stated the following facts and produced the following documents as evidences: 1. The assessee had made an application for allotment of 50000 equity shares of Smart champs IT and Infra Ltd. and she was allotted the share on 3rd December 2011 (copy of Application form, intimation of allotment and share certificate Paper Book at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holding period is required to be 365 days. 12.The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to Modus Operandi of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations,should guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l principles of legal importlaid down by the Courts of law. 15.In our view, just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. 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, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 17. The Hon ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon ble Court held: Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law.That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) AyaaubkhanNoorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in State of M.P.v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 17-3-2005[2005 (187) E.L.T. A33 (S.C.)] 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. 7. 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 was the only basis of issuing the show cause notice. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTAHIGH COURT in the case of BLB CABLES CONDUCTORS[ITA No. 78 of2017] dated19.06.2018. The High Court held vide Para 4.1: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. The Court also held the following vide Page 3 Para 5 the following: Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.3 held as under: .. 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 fall. 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/CIT(A). We note that the allegations that the assesse/brokers got involved in price rigging/manipulation of 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014]order dated 18.09.2017 held as under vide Page 6 Para 8: We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s RamkrishnaFincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises. 20. Applying the proposition of law as laid down in the above-mentioned judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares and hence exempt from income tax. 21.Under the circumstances and in view of the above discussion, we uphold the contentions of the assessee and delete the addition in questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 High Court:- (i) 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:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 Cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd/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) 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect 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) 17. I 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, I 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 acq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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