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2019 (10) TMI 386

..... hares in pursuant to scheme of arrangement. The order passed by the Hon’ble Allahabad High Court approving amalgamation of Kailash Auto Finance Ltd. with Careful Projects Advisory Ltd. and Panchsul Marketing Ltd. The assessee submitted contract note evidencing sale of shares Kailash Auto Finance Ltd.. Evidence of receipts of sale proceeds of shares from the broker by way of bank. The assessee also submitted the broker’s ledger account and demat account statement issued by the broker viz. JRK Stock Broking Pvt. Ltd.. By submitting these plethora documents and evidences, the ld. Counsel for the assessee submitted before us that the assessee has proved the genuineness of the long term capital gain. The ld. Counsel for the assessee has submitted that where the transaction is done within the four corners of the law then it should not be disallowed. The ld. Counsel submitted that the bank statement, brokers note, contract note, demat statement submitted by the assessee before the Assessing Officer were not found by the Assessing Officer as false / untrue. Assessing Officer failed to find any defect in the main documents submitted by the assessee(i.e the bank statement, contra .....

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..... ition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 5. We have heard both the parties and perused the material available on record. We note that before us the ld. Counsel for the assessee submitted the income tax returns acknowledgment (PB-1). The assessee filed computation of total income of balance sheet and profit and loss account (PB-5 to 6). The assessee filed balance sheet and profit and loss account of proprietary firm of M/s S.L. Daruka company for the previous year relevant to assessment year 2015-16 (PB-11 to 14). The assessee filed details of long term capital gain as on 31.03.2015 which is placed on paper book page 10. The assessee also filed previous year s balance sheet and profit and loss account as on 31.03.2012 and 31.03.2013 also. The assessee filed the purchase bill dated 26.03.2012 evidencing purchase of shares of sale of Panchsul Marketing Ltd. (PB-17). The assessee submitted before us the bank statement of the assessee evidencing the payment of ₹ 40,000 from banking channels to M/s Brijdhara Mercantile Pvt. Ltd. for purchase of shares of PanchsulMarketing Ltd. (PB-18). The assessee furnished .....

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..... lue of Investments 2014-15 2015-16 At page no. 117 At page no. 119 14 16,79,92,772/- 2013-14 2014-15 At page no. 121 At page no. 122 15 1,56,51,000/- 2012-13 2013-14 At page no. 124 At page no. 126 10 2,23,78,742/- Thus, from the above table, it is abundantly clear that the assessee is a regular investor in shares and is having a substantial amount of investments. During the year under consideration, the assessee has sold the impugned three scrips and earned capital gains on the same which is claimed year after year consistently. The details of long term capital gain earned by the assessee is given below: Sl No. Name of the Share No. of Shares Purchase Value (Rs.) Sale Value (Rs.) Long Term Capital gains (Rs.) 1. Kailash Auto Finance Ltd. 7,34,000 7,34,000/- 2,35,57,282/- 2,28,23,282/- 2. Lifeline Drugs & Pharma Ltd. 1,76,000 10,50,000/- 4,39,13,859/- 4,28,63,859/- 3. EINS Edutech 14,700 2,35,200/- 58,37,526/- 56,02,326/- Total 7,12,89,467/- We note that the assessee claimed exemption of LTCG of ₹ 7,12,89,467/- u/s 10(38) of the Act, since the shares purchased and sold were listed shares and were purchased and sold through stock broker in Stock Exchange and STT was deduct .....

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..... vidences were available before the ld CIT(A) as well as before the ld AO. The Assessee submitted before us following documents and evidences in respect of Kailash Auto Finance Ltd. (1) KAILASH AUTO FINANCE LTD. i) Copy of purchase bill dated 12.02.2012, reflecting the purchase of 3,20,000 shares of Careful Projects Advisory Ltd. from Trump Traders Pvt. Ltd. (Paper Book Page No. 4) ii) Copy of purchase bill dated 09.10.2012 reflecting the purchase of 9,00,000 shares of Careful Projects Advisory Ltd. from Trump Traders Pvt. Ltd. (Paper Book Page No. 5) iii) Copy of Bank Statement reflecting the debit transaction of the amount of ₹ 3,20,000/- paid for the purchase of shares by cheque no. 729958 on 10.02.2012 (Paper Book Page No. 9) iv) Copy of Bank Statement reflecting the debit transaction of the amount of ₹ 9,00,000/- paid for the purchase of shares by cheque no. 037633 on 09.10.2012 (Paper Book Page No. 8) v) Copy of statement of DEMAT account evidencing the debit of shares of Kailash Auto Finance Ltd. on 07.04.2014, 09.04.2014, 10,04,2014, 11.04.2014, 15.04.2014, 16.04.2014 and so on; (Paper Book page no. 64- 65) vi) Copy of order approving the Scheme of Amalgamation p .....

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..... 14, 06.12.2014, 11.12.2014 and so on; (Paper Book Page No. 63) iv) Copy of Contract Notes evidencing the sale of shares of E1NS Edutech Ltd.; v). Copy of bank statement reflecting the transactions of sale of shares of EINS Edutech Ltd. (Paper Book page No. 59-61). Therefore, by submitting these plethora documents and evidences, the ld Counsel for the assessee claimed that long term capital gain (LTCG) earned in respect of the scrips, namely: Kailash Auto Finance Ltd., Lifeline Drug & Pharma Ltd, and Eins Edutceh Ltd. (Now Aplaya Creations Ltd.) are genuine. We also note that the Securities Exchange Board of India (SEBI) also declared these scrips and shares as genuine and the interim order passed by the SEBI was revoked by SEB1 itself, vide its order SEB1/WTM/MPB/EFD-DRA- 1/31/2017 dated 21.09.2017 (page nos. 69-84). Assessee's name is at S.N. 154 (at page no. 80) read with para 7 of Page no. 83. Hence, we note that since these shares/scrips were traded on the platform of recognized stock exchange and the Securities Exchange Board of India (SEBI) did not give any adverse reporttherefore, long term capital gain arise or earned by the assessee should be genuine and it should .....

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..... been found which includes the name of the scrips in which the assessee has earned Long Term Capital Gain. The Assessing Officer alleged that the transactions were pre-arranged to book such gain in the hands of the pre-fixed beneficiaries. The above allegations are generalized and not specific to the case of the assessee. The assessee was asked to show cause, vide letter dated 14.12.2017, as to why the Long Term Capital Gain booked by way of transaction in the aforesaid scrips would not be considered bogus, and consequently, be added to his total income. The assessee duly replied to the show cause notice vide his letter dated 22.12.2017 thereby giving all the details and reasons as required by the AO to prove that the LTCG incurred by the assessee on sale of above mentioned shares are genuine and cannot be considered as bogus. However, the Ld. AO did not consider the submission of the assessee and made the addition of LTCG in the hands of the assessee treating the same to be unexplained. We note that it appears from the show cause notice that the Ld. AO has relied on the following information for arriving at such conclusion: (a) Information received from the office of DIT(Inv), Kol .....

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..... ssee has proved beyond any doubt that assessee is a regular investor in shares and securities. The shares were purchased and sold through a Registered Broker named "Eureka Stock & Share Broking Services Ltd." in the Stock Exchange. The shares were purchased and sold based on the prevailing market condition. The payments were received through proper banking channel. The purchase and sale transactions were subjected to Security Transaction Tax, Service Tax, Brokerage charges and Stamp duty. The share purchase and sale transactions are reflected in the d-mat account. The purchase of shares (Investments) was not disputed in earlier year, where assessment is completed u/s. 143(3) of the Income Tax Act. These facts are verifiable from the regular books of accounts. The transactions can also be verified from the Stock Exchange. Therefore, we do not agree with the assessing officer and hence the addition made by assessing officer needs to be deleted. So far second allegation of the assessing officer is concerned, we note that assessing officer has relied on the statement given by Sri Sunil Dokania, an alleged entry operator. We note that the AO has made general allegations ab .....

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..... f Sri Sunil Dokania. Coupled with this, the CBDT s circular dated 10.03.2003 itself made it clear that such admissions or statements without anytangible evidence found during search carry no significance. 16. We note that Securities Exchange Board of India (SEBI) is an authority which regulates the listed companies. The SEBI controls listed companies and makes rules and regulations and the listed companies are supposed to follow the rules, regulations and directions given by SEBI. We note that SEB1 by its interim order dated 29.03.2016 restrained 246 entities from accessing the securities market and from dealing and buying & selling in securities, directly or indirectly in any manner whatsoever till any further directions (Page No. 69) and included Kailash Auto Finance Ltd. and assessee at Serial No. 1 and Serial No. 156 (Page Nos. 70 & 74 respectively) . However, the same was revoked by SEB1 vide its order SEB1/WTM/MPB/EFDDRA- 1/31/2017 dated 21.09.2017 (page nos. 69-84). Assessee's name is at S.N. 154 (at page no. 80) read with para 7 of Page no. 83. We note that the SEBI by its order bearing reference no. SEBI/WTM/MPB/EFD- DRA-I/31/2017, dated 21.03.2017, has held as .....

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..... uine investor was unaware of the fact that any such activity was undertaken in the scrips purchased by him. He was nowhere, associated with the person alleged to provide the entries as alleged by the AO. We also note that SEBI has given a clean chit to the company and has freed it from the allegation of market rigging. Therefore, the allegation of the AO itself becomes infructuous. Further, the assessee had also requested for an opportunity to cross examine Sri Sunil Dokania, whose statement has been relied on by the AO for making the addition. However, the Ld. AO did not provide any opportunity for cross examine the so-called operators. It is well established law that no adverse view can be taken against an assessee on the basis of statement recorded by department of any person without providing copy of the statement to the assessee and also without providing opportunity for cross examination of the said person. 18. We note that Hon ble Bombay High Court in the case of CIT vs. Lavanya Land Pvt. Ltd. [2017] 83taxmann.com 161 (Bom) held that there was no evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleg .....

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..... 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) GaneshmullBijay 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) 21. The ldCounsel also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to .....

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..... ed 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. 24. We note that when the transactions were as per norms prescribed by SEBI and concerned stock exchange and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. AO did not doubt the genuineness of the documents submitted by assessee. The ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. The assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. In these circumstances, the long term capital gain (LTCG) earned by the assessee should not be treated as bogus, as held by the jurisdictional Hon ble Calcutta High court in various cases, as mentioned below: .....

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..... he Hon ble High Court of Calcutta in the case of ALPINE INVESTMENTS ITA 620 of 2008, dated 26thAugust 2008, held as follows: It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried out through recognized stockbroker of the Calcutta Stock Exchange and all the payments made to the stockbroker and all the payments received from stockbroker through account payee instruments, which were also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the Tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transactions of share are genuine. Therefore, we do not find that there is any reason to hold that there is any substantial question of law involved in this matter. Hence, the appeal being ITA No.620 of 2008 is dismissed. (vi) The Hon'ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT .....

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..... t held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated. (viii) 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. We note that above mentioned judgments of Hon ble Calcutta High Court, by and large held that where the whole transactions were supported by contract notes, bills and were carried out through recognized stockbroker of Stock Exchange and all the payments made to the stockbroker and all the payments received from stockbroker through account payee cheques, then in these facts and circumstances addition made by assessing officer on account of bogus long term capital gain should be deleted. We note that unless and until the ord .....

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..... e following cases:- (xx) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM) (xxi) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM) (xxii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT) (xxiii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (xxiv) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (xxv) Surya Prakash Toshniwal vs. ITO - ITA No. 1213/Kol/2016 (Kol ITAT) (xxvi) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (xxvii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) (xxviii) Anil Nandkishore Goyal vs. ACIT - ITA Nos. 1256/PN/2012 (Pune ITAT) (xxix) CIT vs. Sudeep Goenka - [2013] 29 taxmann.com 402 (Allahabad HC) (xxx) CIT vs. Udit Narain Agarwal - [2013] 29 taxmann.com 76 (Allahabad HC) (xxxi) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xxxii) CIT vs. Himani M. Vakil - [2014] 41 taxmann.com 425 (Gujarat HC) (xxxiii) CIT vs. Maheshchandra G. Vakil - [2013] 40 taxmann.com 326 (Gujarat HC) (xxxiv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xxxv) GaneshmullBijay Singh Baid HUF vs. DCIT - ITA Nos. 544/Kol/2013 (Kolkat .....

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..... T vs.Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (vii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (viii) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum) 31. 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. 32.It is clear from the above that .....

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..... d out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed. 36. We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale pr .....

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..... essee has to guide decision in the matter or the general observations based on statements, probabilities, human behaviour and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee's action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be pr .....

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..... any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. No such action executed by investigation wing against the assessee. In absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons in .....

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..... the assessee and also without providing opportunity for cross examination of the said person.We note that the assessee had never entered into any transaction with Sri Sunil Dokania, against whom investigation wing had allegedly made inquiry. We also note that in the extracts of the statement of Sri Sunil Dokania given in the Show Cause notice, it is nowhere mentioned that the alleged person has provided any entry to the assessee directly. We note that the ld Counsel has proved that assessee is a regular investor in shares and securities. The shares were purchased and sold through a Registered Broker named "Eureka Stock & Share Broking Services Ltd." in the Stock Exchange. The shares were purchased and sold based on the prevailing market condition. The payments were received through proper banking channel. The purchase and sale transactions were subjected to Security Transaction Tax (STT), Service Tax, Brokerage charges and Stamp duty. The share purchase and sale transactions are reflected in the DMAT account. The purchase of shares (Investments) was not disputed in earlier year, where assessment is completed u/s. 143(3) of the Income Tax Act. These facts are verifiab .....

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