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2019 (8) TMI 610

..... THAT:- We further note that this is not a case of purchase of penny stock of a company and within a short period there is an unprecedented hike in the sale price of the shares, but in case the assessee purchased the shares of unlisted company which was subsequently amalgamated with a listed company and, therefore, the value of the amalgamated entity is certainly very higher than the value of share of unlisted company though there can be a question about the sweep ratio of the shares. However, the same has not been doubted by any authority and the scheme of amalgamation was duly approved by the Hon’ble High Court. Thus there is an extraordinary event in this case of amalgamation of unlisted company with a listed company and consequently there is a sudden increase in the price of the shares of amalgamated entity. As held in Shri Pramod Jain vs. DCIT [2018 (2) TMI 300 - ITAT JAIPUR] addition made by the AO based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that trans .....

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..... espect of long term capital gain declared by the assessee on sale of shares of M/s. Trinity Tradelink Limited treating the same as bogus transaction which was deleted by the ld. CIT (Appeals). 3. The assessee is an Individual and partner in firm M/s. Totaram Banwari Lal as well as Hotel Rajdoot. The assessee filed his return of income on 29th October, 2014 declaring total income of ₹ 21,09,000/-. The assessee has also declared long term capital gain of ₹ 1,48,50,672/- on sale of shares of M/s. Trinity Tradelink Ltd and claimed the same as exempt under section 10(38) of the IT Act. During the scrutiny assessment, the AO issued a show cause notice to the assessee as to why in view of search and seizure action carried out by the department in cases of different entities which has resulted unearthing of huge long term capital gain scam involving syndicate of operators providing bogus accommodation entries, the capital gains declared by the assessee shall not be treated as bogus transaction. The AO has also made reference to the statement of one Shri Vikrant Kayan recorded under section 133A on 09.06.2014 by the Investigation Wing, Kolkata and pointed out that Shri Vikrant K .....

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..... year which clearly shows that it is not a normal genuine transaction of purchase and sale of shares but the assessee has availed the bogus entries of long term capital gain from the persons who were involved in providing these bogus entries against cash. Therefore, the assessee s own unaccounted income has been routed back in the form of exempt income under section 10(38) of the Act. The ld. D/R has referred to the assessment order and submitted that the AO has referred the statement of one Shri Vikrant Kayan recorded by the department at Kolkata during the survey conducted on 09.06.2014. In his statement Shri Vikrant Kayan clearly explained the modus operandi of providing the accommodation entries of bogus bill, share capital, long term capital gain etc. He has also given the names of various concerns which were managed and the accommodation entries in the shares of those concerns were being provided. Thus M/s. Trinity Tradelink Ltd. is one of the entities as admitted by Shri Vikrant Kayan, shares of which the assessee has claimed to have purchased and sold. The ld. D/R has also referred to the price chart of the shares of M/s. Trinity Tradelink Ltd. as reproduced by the AO and su .....

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..... t Account through Stock Exchange is also not in dispute. The AO has doubted the transaction only on the basis of the information received from the Investigation Wing Kolkata. However, there is nothing in the said report against the assessee. Thus the finding of the AO is based only on suspicion without bringing any evidence to show that the assessee s own unaccounted income has been routed back in the shape of long term capital gain. The ld. A/R has further submitted that the company M/s. Trinity Tradelink Ltd was earlier a private limited company and subsequently it was converted into a public limited company. After the shares purchased by the assessee, the said company was amalgamated with one M/s. Omnitech Petroleum Ltd. (formerly known as Sharp Trading & Finance Ltd.) vide approval of amalgamation by the Hon ble Bombay High Court dated 10th January, 2014 with effect from 01.04.2012. The ld. A/R has referred to the decision of Hon ble High Court and submitted that the transferor company was incorporated as private limited company with the name M/s. Trinity Tradelink on 1st May, 2007. Thereafter the said company was converted into public limited company and accordingly the na .....

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..... ITD 1 and submitted that the Special Bench has held that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of preponderance of probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. Thus in the absence of any material or direct evidence brought on record by the AO to show that the assessee introduced his own unaccounted income by way of bogus long term capital gain, the treatment of long term capital gain as bogus is not sustainable in law. He has also relied upon the decision of Hon ble Jurisdictional High Court dated 11.09.2017 in case of CIT vs. Pooja Agarwal in DB IT Appeal No.385/2011. He has also relied upon the order of this Tribunal dated 31st January, 2018 in case of Shri Pramod Jain vs. DCIT in ITA No. 368/JP/2017. The ld. A/R has referred a series of decisions of this Tribunal as well as Coordinate Benches of the Tribunal wherein the long term capital gain treated as bogus accommodation transaction by the AO has been held as genuine transaction as the assessee has produced all the supporting evidenc .....

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..... e AO as the short term capital gain was offered to tax by the assessee. The AO has disputed the transaction of purchase and sale only to the extent of the shares which were sold after one year and thereby the assessee claimed long term capital gain as exempt under section 10(38) of the IT Act. We further note that the AO has given the details of the prevailing price of shares of M/s. Trinity Tradelink Ltd. at Stock Exchange in the years 2012, 2013 and 2014. However, it is pertinent to note that the assessee purchased the shares of M/s. Trinity Tradelink Ltd. which was not listed in the Stock Exchange in the year 2012 but only after amalgamation of the said company with M/s. Omnitech Petroleum Ltd. (formerly known as Sharp Trading & Finance Ltd.) as per the approval of amalgamation by the Hon ble Bombay High Court vide decision dated 10th January, 2014, the amalgamated company shares got listed by virtue of amalgamation. At the time of amalgamation, M/s. Trinity Tradelink Ltd. amalgamated in M/s. Omnitech Petroleum Ltd. but subsequently the said company also changed its name to M/s. Trinity Tradelink Ltd. which has resulted this confusion of prevailing share price in the Stock E .....

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..... the report of investigation and the statement has treated the transaction as bogus whereas the assessee produced all the relevant direct evidences to establish the purchase of shares by paying the purchase consideration through banking channel. The evidence produced by the assessee is independently verifiable as the bank account wherein the payment is reflected cannot be manipulated by the assessee. Further the shares were dematerialized and holding of the shares in the Demat Account is also independently verifiable and cannot be disputed in the absence of any contrary material to show that the Demat Account produced by the assessee itself is bogus. We further note that this is not a case of purchase of penny stock of a company and within a short period there is an unprecedented hike in the sale price of the shares, but in case the assessee purchased the shares of unlisted company which was subsequently amalgamated with a listed company and, therefore, the value of the amalgamated entity is certainly very higher than the value of share of unlisted company though there can be a question about the sweep ratio of the shares. However, the same has not been doubted by any authority and .....

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..... que on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon ble High Court vide order dated 28.8.2011. The assessee in the mean time got .....

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..... then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation .....

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..... each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- 3. Since, the shares were allotted by the company through private placement after c .....

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..... produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: 5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order 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 mentione .....

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..... bserved in par 46 as under:- 46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been un .....

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..... ssue in para 12 as under:- 12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a .....

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..... transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account. In view of the above facts and circumstances when the assessee has produced a .....

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