TMI Blog2020 (11) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... long term capital gains to large number of beneficiaries in lieu of unaccounted cash. These observations of the AO in the assessment order cannot constitute any tangible material or evidence to show that the transaction of the assessee is bogus being an accommodation entry. No such information/documents/statementswas made available to the assessee thereby violating the basic principle of confronting the assessee with the documents which the Revenue wishes to rely against the assessee. In the assessment order so passed, the AO has made reference to a statement of Shri Vipul Vidur Bhatt recorded u/s 132 during certain search operations by the Investigation Wing, Mumbai and has relied on the same for holding the transaction as bogus by availing the accommodation entry of long term capital gain and beneficiary of the bogus LTCG scam. As the assessee was again not confronted with such statement during the show-cause notice and he came to know of the same from perusal of the assessment order, he raised the objection before the ld CIT(A) that no such statement of Shri Vipul Vidur Bhatt recorded u/s 132 was made available to him during the course of assessment proceedings and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly not correct as the assessee has received interest from partnership firm - disallowance of interest is hereby deleted and the ground of appeal so taken by the assessee is allowed. - ITA No. 124/JP/2020, ITA No. 188/JP/2020, ITA No. 185/JP/2020, ITA No. 123/JP/2020 - - - Dated:- 18-11-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Sandip Jhanwar (CA) For the Revenue : Shri B.K. Gupta (CIT) And Smt. Runi Paul (Addl.CIT) ORDER PER VIKRAM SINGH YADAV, A.M. These are four appeals filed by the aforesaid individual assessees against the respective orders of ld. CIT(A)-1, Jaipur all dated 16.01.2020 30.01.2020 for A.Y 2014-15. Since the common issues are involved, all these appeals were heard together and are being disposed off by this consolidated order. ITA No. 124/JP/2020 2. With the consent of both the parties, the case of assessee, Shri Ashok Agarwal in ITA No. 124/JP/2020 for A.Y 2014-15 is taken as the lead case for the purposes of present discussion wherein the assessee has taken the following ground of appeal:- Under the facts and circumstances of the case, the ld CIT(A)-1, Jaipur has erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lgamation with M/s. SantoshimaTradelinks Ltd). The assessee also produced the records showing the sale of the shares of M/s. Sunrise Asian Ltd. from the Demat account through Stock Exchange during the period starting 19th September 2013 to 25th March 2014 and the sale consideration of ₹ 7,82,75,591/- received in the bank account of the assessee. Thus the assessee contended that the transaction of purchase and sale of shares of M/s. Sunrise Asia Ltd is genuine and since the shares were sold after holding for more than one year and STT has been paid, therefore, the capital gain arising from the said transactions is exempt under section 10(38) of the IT Act. The assessee also challenged the observations of the AO that the M/s Sunrise Asian Ltd is engaged in giving accommodation entries as the information so gathered by the AO were not made available or confronted to the assessee and in any case, the said information is in nature of generalized information without pointing out the assessee s involvement or that matter, the specific transaction pertaining to the assessee. The assessee also relied upon various decisions in support of his claim. The AO did not accept the reply of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of shares of M/s SantoshimaTradlinks Ltd and subsequent exchange and allotment of shares of M/s Sunrise Asia Ltd which were credited to the Demat account of the assessee. Thereafter, the assessee sold these shares during the year under consideration in various lots during the period starting 19th September 2013 to 25th March 2014. He has referred to the contract notes and Demat account maintained with the Axis Bank where these sale transactions are duly reflected in the Demat account of the assessee. The ld A/R has further referred to bank statement showing receipts of sales consideration of ₹ 7,82,75,591/-. The ld. A/R has accordingly contended that when the holding of the shares are not in dispute, then the transaction of purchase and sale of shares cannot be held as bogus. The ld. A/R has further contended that the AO has made reference of SEBI order dated 7.11.2016 suspending the trading in the shares of M/s. Sunrise Asian Pvt ltd. It was submitted that the assessee was not provided with a copy of the said order and in any case, from the reading of the assessment order itself, it is clear that said suspension is on account of failure to meet certain disclosure requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, neither the AO nor the report suggest any evidence of handing over the cash nor any persons has been named who was operator in assessee's transaction alleged to be bogus. Therefore, it is incorrect to link assessee's transaction with the report of investigation wing. III. The ld. AO has alleged the Share broker of the assessee M/s Mehta Equities provides the exit entry. However, in the investigation report nowhere it is mentioned that M/s Mehta Equities provides the exit entry and no enquiry has been conducted by the Income Tax Department on M/s Mehta Equities. Further, in all the notices issued to the relatives in the similar case nowhere name of M/s Mehta Equities was mentioned as exit provider in list provide by the Ld. AO. IV. The report mentions that beneficiaries shares are purchased by bogus/paper companies. AO has referred certain BSE data but no such data has been given anywhere. Further, the assessee has placed order for sale to his broker and, in the mechanism of transaction through stock exchange, a seller can't get any information of buyer. He got payment of sale through his broker only. Therefore, the modes operandi explained in the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit that if any material or evidence is sought to be relied upon by the ld. AO, he has to confront the assessee with the material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under pretentious garb of preponderance of human probabilities and theory of human behaviour by the department. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submissions of the assessee that he is just an investor and as he received some tips and he chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that he is not party to the scam etc., has to be controverted by the Revenue with evidence when a person claims that he has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. 8. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulfillment or non-compliance of any conditions of section 10(38) of the Act. Hence, rejecting the claim u/s 10(38) of the Act without giving reasons is wrong and contrary to the provision of law. In support of his contentions, he has relied upon the following decisions:- Andaman Timber Industries vs Commissioner of Central Excise [2015] 62 taxmann.com 3(SC) CIT vs A.L Lalpuria Construction (P) Ltd 32 taxmann.com 384 (Raj) CIT vs. Smt. Pooja Agarwal (DBIT Appeal No. 209/2018 dated 11.09.2017) (Raj HC) PCIT vs. Shri Pramod Jain Others (DBIT Appeal No. 385/2011 dated 24.07.2018) (Raj HC) AnrajHiralal Shah (HUF) vs ITO (4514/Mum/2018 dated 16.07.2019) Megraj Singh Shekhawat vs DCIT (ITA No. 443 444/JP/2017 dated 07.03.2018) ITO vs Gaurav Bagaria (ITA No. 550/JP/2019 dated 10.07.2019) DCIT vs Saurabh Mittal (ITA No. 16/JP/2018 dated 29.08.2018) ITO vs Lalit Kumar Biyani (ITA No. 1153/JP/2019 dated 03.02.2020) Annop Jain vs ACIT [2020] 114 Taxmann.com 550 Ravindra Kajaria vs ITO (ITA No. 2412/Kol/2018 dated 23.08.2019) 10. Per contra, the ld. D/R has submitted that the AO has discussed all the relevant facts in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. D/R has submitted that the transaction through banking channel and sale of shares on the stock exchange is not sacrosanct to hold that the transaction is genuine when all other surrounding circumstances indicate that the assessee has obtained accommodation entries of bogus Capital Gain in respect of penny stock and the circumstantial evidence and surrounding circumstances cannot thus be ignored. Thus the AO has clearly brought out the case of accommodation entries of bogus Long Term Capital Gain and which has been rightly confirmed by the ld CIT(A). In support, reliance was placed upon the judgment of Hon ble Supreme Court in case of Nawabganj Sugar Mills Co. Ltd vs CIT [1972] 86 ITR 44. The ld. D/R has also relied upon the decision of Hon ble Delhi High Court in case of Suman Poddar vs. ITO, 112 taxmann.com 329 (Delhi). The ld. D/R has submitted that the Hon ble High Court has confirmed the decision of the Tribunal whereby the Long Term Capital Gains claimed by the assessee in respect of purchase and sale of penny stock were treated as bogus transactions being accommodation entries. It was submitted that the SLP filed by the assessee against the judgment of the Hon ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation carried out by the Investigation Wing, Kolkata wherein certain persons were found indulged in providing accommodation entries, inter-alia bogus Long Term Capital Gains which is claimed as exempt under section 10(38) of the Act by the beneficiaries in order to facilitate the beneficiaries to convert their black money into white without paying Income-tax. The AO has narrated the modus operandi of various entry providers which is a general statement so far as the indulgence of certain persons in providing the accommodation entry of bogus long term capital gains as well as other transactions. However, in the said narration of modus operandi, there is nothing against the particular transaction of purchase and sale of shares by the assessee. The AO has specifically mentioned that during the course of enquiry in certain cases it has come to light that large scale manipulation has been done in the market price of shares of certain companies listed on Stock Exchange by a group of persons working as a syndicate for the purpose of providing entry of tax exempt bogus long term capital gains to large number of beneficiaries in lieu of unaccounted cash. These observations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ₹ 7,51,07,591/- after taking into consideration the cost of purchases of those scripts on 5.11.2011. Securities transaction tax has been duly paid on such transaction and the information is available as per the records already submitted. All the transactions are through banking channels and via means and process which is justified following all relevant laws, rules and procedures. The related documents have already been submitted and no discrepancy therein has been pointed out by your goodself in the same. 3. Your goodself has referred to certain information receive vide letter no. dated 27-04-2015 wherein it was stated that Sunrise Asian Ltd is engaged in giving accommodation entries. We may submit that the same is not sufficient to make addition in this case for following reasons: i) The information gathered has neither been made available nor confronted with the assessee. ii) Nothing in your letter states that why and how it is found that Sunrise Asian Ltd is engaged in giving entries of bogus LTCG. iii) Nothing has been stated to show the information where assessee's name is appearing as beneficiary of accommodation entry. iv) Nothing has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, the assessee was not made available any such statement and even the right of cross examination was denied by the ld CIT(A) who exercises the co-terminus powers as that of the AO. Thus, in view of the decision of Hon ble jurisdictional High Court in case of CIT vs A.L Lalpuria Construction (P) Ltd (supra) and the decision of the Hon ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra), the assessment based on statement of third party without giving an opportunity to the assessee is not sustainable in law. The Hon ble Supreme Court in case of Andaman Timber (Supra) while dealing with the issue has held in para 5 to 8 as under:- 5. We have heard Mr.KavinGulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senior counsel who appeared for the revenue. 6.According to us, not allowing the assessee to cross-examine the witness 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of issuing the Show Cause Notice. 14. Therefore, the statement of a third party cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity.Even on perusal of such statement of Shri Shri Vipul Vidur Bhatt, we find that it is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. The AO has either discussed the modus operandi of entry providers and their statements but has not made any reference of any material or documentary evidence which reveals that the assessee has indulged in availing the accommodation entry of bogus long term capital gain. There is no dispute that once the assessee has claimed the long term capital gain from purchase and sale of shares which is exempt under section 10(38) of the Act, the primary onus is on the assessee to substantiate his claim by producing the supporting evidence. We find that in the case in hand this is not an isolated transaction of purchase and sale of shares by the assessee of M/s. Sunrise Asian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares through Stock Exchange which are also reflected in the Demat account of the assessee and receipt of the sale consideration in the bank account of the assessee as it is evident from the bank account statement of the assessee, then in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record. 16. The ld. D/R has relied upon the decision of Hon ble Delhi High Court in case of Suman Poddar vs. ITO (supra) wherein the Hon ble High Court has confirmed the finding of the Tribunal and finally observed in para 8 as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank account of the assessee. The AO also observed that since the return for the asst. yr. 2000-01 relevant to the year of purchase, was filed after the date of sale and that purchase of shares was not done through the bank account of the assessee, the actual event of purchase of the shares of assessee could not be verified and, therefore, it was apparently an afterthought and a modus operandi adopted to convert the undisclosed income into 'capital gain'. The director of the company was also summoned, but no such person was found available at the address of the company obtained from Guwahati Stock Exchange and no company by name of Birdhichand Pannalal Agency was in existence at the said given address. The share broker was also examined under section 131 and in course of examination, he stated that all records of purchase and sale of shares were lost and thus, the actual purchase and sale of shares could not be verified. The AO, therefore, treated the 'capital gain' as bogus and disallowed the long-term 'capital gain', sought to be exempted under s. 54 of the Act, to the tune of ₹ 15,33,160 and added back the same as income from undisclosed sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from ₹ 2.50 to ₹ 67.97 within a span of one year, when the profit, upon payment of tax of the company for 3 years, was negligible and no dividend could be declared, because of the inadequacy of profits, coupled with the facts that the purchase of shares was made in cash, the share broker failed to produce the records relevant to the purchase and sale of shares on the ground that the same were lost, the share quotation price of the purchase was not produced before any authority, the return of income, relevant to the purchase and sale of shares was filed after the transaction of sale, as claimed, was over, are clearly relevant circumstances pointing out towards the fact that the transaction was not genuine and the same was an afterthought and a sort of modus operandi to convert the undisclosed income into a 'capital gain'. 43. From the facts and circumstances narrated above, it cannot be said that the explanation offered by the assessee, as regards long-term 'capital gain' was rejected unreasonably and that the finding that the said amount was not on account of longterm 'capital gain' is based on no evidence. 44. Having consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque 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 amalga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of ₹ 1/- 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in para 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 assesseecompany 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue 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 purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the 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 nongenuine. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that Capital gains cannot be treated as bogus solely on the basis that the price of the shares has risen manifold and the reason for astronomical rise is not related to any fundamentals of market. If the transactions are duly proved by trading from stock exchange and the documentation is proper, the gains cannot be assessed as unexplained credit or as unexplained money. It was further observed that nowhere it has been found that assessee was in any manner found to be beneficiary of any accommodation entry under any inquiry or investigation and there is no material that any action has been taken by the SEBI against the company and the company has been black-listed or suspended from trading on account of price manipulation. Once all these transactions are duly proved by trading on stock exchange, then to hold the sale of shares as unexplained and bogus cannot be upheld. Similarly, in the instant case, we find that the AO has not brought on record any material or documentary evidence to show that the assessee has availed accommodation entry of bogus long term capital gains under any enquiry or investigation rather the assessee has produced all relevant documentary evidence in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then gain or loss is treated as short term capital gain taxable at concessional rate of tax as per the provisions of Income Tax Act and if these shares are sold on stock exchange after holding for exceeding one year paying STT then resultant gain or loss is treated as long term gain/ loss which is exempt from tax u/s 10(38) of the Act. 9. He referred that to the order of the AO and that of the CIT(A) and stated that both the authorities did not accept the above referred evidences filed by the assessee in support of his claim and by relying on the general study report of the investigating wing rejected the claim and held that the entire transactions undertaken by the assessee were merely an accommodation entries taken for the purpose of securing bogus long term capital gains and to claim exempt income and consequently assessed the sale proceed as an unexplained cash credit under section 68 of the Act. The AO has referred to the findings in the general study report of the Investigation Wing of Kolkata and Mumbai, wherein it laid down the purported modus operandi of converting unaccounted money into exempt LTCG. It is stated that a person acquires shares of penny stocks trading a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a SEBI order has been passed in the case of Pine Animation Ltd order vide dated 08.05.2015 which directs that the trading in the securities of shall be suspended till further directions...........The shares are sold by the beneficiaries have been purchased by paper/ bogus entities (e)it providers). Para 11.3: ......to prove genuineness, proof of physical transfer of shares, reasons to trade off-market when options to online market trading through demat account were available, trading pattern of market transactions for the last three years, have not been submitted to this office Submissions on above: 11. The learned Counsel argued that the findings of the Investigation Department are general in nature and it is basically a study report and not known which cases are investigated. As understood from the assessment order the assessee's name or his transactions are not referred in such reports and the AO has not established any link between that report and assessee's transactions. This is also fatal as reliance on such investigation report, without confronting the assessee with the same, renders the assessment bad in law. The Investigation in assessee's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made after obtaining prior approval of BSE as per SEBI Issue of Capital and Disclosure Requirements Regulation, 2009. The sale of shares of PAL is through a reputed broker Geojit. All necessary supporting evidence have been submitted to establish the genuineness of the transactions. On investigation, the role of Geojit was not found to be suspicious or questionable. Therefore, reliance on the findings of the Investigation Wing in some other cases which bears no connection with the case of the assessee irrelevant. 14. It was contended further that there is no evidence that implicate the assessee to have entered into any arrangement with any operators /exit providers or involvement of unaccounted money. The assessee took strong objections to AO linking him or his transactions with so called alleged exit providers and accommodation entry providers without any evidence or involvement mentioned in such investigation reports and statements of such persons. The seamless process of transactions at BSE as explained hereafter does not identify and provide us the identity of persons who have purchased those shares sold by assessee. The assessee has ordered his broker to sell the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any of the listed companies who has signed listing agreement with SE are dealt on the stock exchange platform through a registered broker only. The purchase and sale transactions on the stock exchange (SE)platform are with the stock exchange and settled through the clearing system and payment is received from brokers or paid to brokers online to or by the exchange clearing system. When any customer orders the broker to sell any script, the stock broker sells the shares on trading system through the exchange terminal and generate contract note. On sale, the shares are delivered from the customer's demat a/c to the stock broker's demat a/c who in turn transfers the shares to stock exchange pool a/c, who on settlement day delivers to the buyer's demat a/c. On the other side, the buyer pays the price as per contract note to his broker who pays to the SE who then transfers the amount to the seller's broker on settlement day. Thus, the seller and the buyer or their brokers does not have direct relation nor dealing with each other. Nor they know the buying or selling parties or the brokers. The customers deal with their respective brokers and brokers deal with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was supplied by BSE to the assessee in the form of a CD to offer his reply on the ex-parte order issued by SEBI on 08.05.2015. From the CD, the assessee came to know that his shares of PAL were bought by 50 buyers through multiple brokers. The delivery of shares is given to Geojit by the assessee from his demat account. Copy of demat statement is already filed in assessee paper book before us. The broker in turn transfers the shares to BSE Clearing account. The sale proceeds of sale of shares is settled by exchange settlement system and directly credited to broker's bank accounts by the BSE and the assessee received payment from Geojit i.e. directly into his designated hank account. Copy of bank statement is filed in assessee s paper book (APB). 19. Further, the assessee has no connection or nexus with the buyers as also the activities of the buyers. Even if the buyers are doubtful or of suspicious character that does not affect the transactions of sale of shares by the assessee through proper channel i.e. on the recognized stock exchange through the registered broker and payments were received. He argued that during search itself and in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08.05.2015 which were confirmed vide Orders dt. June 02, 2026, July 05, 2016, August 22, 2016 and June 02, 2017 need not be continued. 11) In view of the foregoing, I in exercise of the powers conferred upon me under Section 19 of SEBI Act, 1992 read with section 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dt.02.06.2026, 05.07.2016, 22.08.2016 and 02.06.2017 qua aforesaid the 114 entities with immediate effect. 21. Thus, the SEBI's final order dated 19.09.2017 clearly came to the conclusion that SEBI's investigation did not find any adverse evidence against the 114 entities including the assessee and given finding that the assessee has no connection/nexus with PAL or its promoters/directors or promoters related entities nor any role in price manipulation, volume manipulation in the script of PAL. No violation of provisions of SEBI Act, SCRA, PFUTP regulation s, etc. were observed in respect of 114 entities (including the assessee). The list of 114 entities referred in the SEBI Order also includes following alleged exit providers discussed in show cause notice and referred to in the assessment order as under: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee acquired the shares on the basis of guidance from his father and friends. The purchase and sale of shares was neither pre-planned nor under any arrangement with the company or any party related to it. The allotment of shares by PAL was made after obtaining prior approval of BSE as per SEBI Issue of Capital and Disclosure Requirements Regulation, 2009. We noted from the facts that as per the financials provided in the assessment order, it can be seen that the company had incurred a loss in FY 11-12 of ₹ 7 lakhs and has earned profit of 16 lakhs in FY 12-13. The fact that PAL was turned from loss making to profit earning itself demonstrates the fact that there was potential in PAL due to which the assessee purchased the shares. Further, the turnover, in the FY 2013-14 increased by 10 times as compared to the preceding previous FY and increase in the net profit after tax was almost around 4 times than that of the net profit recorded in the year of purchase. Moreover, the prices of the company were almost constant for a year. When the assessee thought that the prices had reached its peak, he slowly sold all the shares in a time span of 3 months. To prove the genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions and SEBIs final order were already on its record thereby contravening the principles of natural justice. 28. We also noted that as per provisions of section 68 of the Act, where any sum is found credited in the books in any previous year and assessee offers no explanation about the nature and source thereof or the explanation offered is not satisfactory to the AO, the sum credited may be charged to tax under Sec. 68 of the Act. The assessee is required to prove: (i) the identity of the creditor (ii) Source of the credit and (iii) genuineness of the transaction to the satisfaction of the AO. To prove the identity of the creditor, the nature of transactions, source of payments and the genuineness of the transactions of sale of shares of PAL, the assessee has submitted following documents/ evidences: - a) To prove the identity of creditor and nature of transaction the assessee submitted copy of Contract note on sale by Geojit on BSE platform. The contract notes shows the quantity, rate, time stamp, value, taxes and charges viz. STT, brokerage, SEBI and exchange turnover charges, service tax and stamp duty incurred on all the transactions done on BSE platform, a stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aggregate value of investments for 5 years have been as under: - AY ( as on date) Total investment in shares Amount (in Rs.) 31.03.2011 3,77,21,394 31.03.2012 3,33,40,018 31.03.2013 2,66,87,649 31.03.2014 2,91,24,876 31.03.2015 2,58,84,431 Copies of Balance Sheet of the assessee for the above mentioned years showing the investments made in shares were submitted to the AO vide submission dated 15.03.17 as well as before CIT(A) and even now before us. This adds to the bonafide of the assessee s transactions. In view of the above facts and circumstances of the case, we have to go through the expression of nature and source and has to understand the requirement of identification of the source and its genuineness. Sec. 68 of the Act places the burden of proof on the tax payer, to explain the nature of source of any credit but not the source of the source. Hence when an assessee gives evidences of identity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative also relied on the decision of the Hon ble Bombay High Court, Nagpur Bench in the case of Sanjay Bimalchand Jain vs. Pr. CIT (2018) 89 taxmann.com 196 (Bom), wherein the decision on the impugned issue was discussed. Hon ble High Court has considered the facts of Sanjay Bimaichand Jain supra from where we find that (i) in that case, the broker company through which the shares were sold did not respond to AO's letter regarding the names and address and bank account of the person who purchased the shares sold by the assessee (ii) Moreover, at the time of acquisition of shares of both the companies by the assessee, the payments were made in cash (iii) The address of both the companies were interestingly the same (iv) The authorized signatory at both the companies were also the same person (v) The purchase of shares of both the companies was done by that assessee through broker, GSSL and the address of the said broker was incidentally the address of the two companies. Based on these crucial facts, the Hon'ble Bombay High Court rendered the decision in favour of the revenue. None of these factors were present in the facts of the assessee before us. Hence it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department. 33. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submissions of the assessee that he is just an investor and as he received some tips and he chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that he is not party to the scam etc., has to be controverted by the revenue with evidence when a person claims that he has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are many ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 would be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any findings 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 investigated. In this case, the AO at best could have considered the investigation report as a starting point of Investigation. The report only Informed the AO that some persons may have misused the scrip: for the purpose of collusive transactions. The AO was duty bound to make inquiry from all concerned parties relating to the transactions and then to collect evidences that the transaction entered into by the assessee was also a collusive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of ₹ 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of ₹ 1,000 each. 37. The observations of the Hon'ble Apex Court are equally applicable to the case of the assessee. The AO and CIT(A) both, having failed to bring on record any material to prove that the transactions of the assessee were collusive transactions 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 and hence under these circumstances nothing can be implicated against the assessee. In view of the above, the findings / allegations of the AO and CIT(A) are baseless, without any evidence, contrary to the facts and circumstances of the case and provisions of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obabilities, human behavior 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 has been discussed at length. And referring to legal proposition laid down by the Hon ble Supreme Court that the burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidence held that 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. We are in complete agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of purchase and sale of shares on the stock exchange have not been refuted by any adverse findings or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal so taken by the assessee is allowed. 26. In the result, the appeal of the assessee is allowed. ITA No. 188/JP/2020, 185/JP/2020 123/JP/2020 27. In respect of ground of appeal no. 1 relating to denial of claim of exemption under section 10(38) in all these three appeals, both the parties fairly submitted that the facts and circumstances of these cases are exactly identical as in ITA No. 124/JP/2020 and similar contentions raised therein may be considered. Therefore, considering the admitted position that there are no changes in the facts and circumstances, our findings and directions contained in ITA No. 124/JP/2020 shall apply mutatis mutandis to these appeal matters and the ground of appeal of the respective assessee is accordingly allowed. 28. Ground No. 2 in all three appeals is regarding the addition made by the AO on account of notional commission u/s 69C of the Act which is consequential to the issue of treatment of long term capital gain as bogus. Once, we have reversed the finding of the AO on the issue of treatment of long term capital gain as bogus then, the consequent addition made by the AO on notional commission is not sustainable. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the ground raised by the appellant be dismissed. 33. We have heard the rival contentions and purused the material available on record. Firstly, it is noted that the assessee has interest free funds more than interest bearing funds and in such cases of mixed funds, the Courts have held and upheld the presumption that where any interest free advances have been given, the same are given out of interest free funds. The same is however subject to caveat where it is established that interest bearing funds have a direct nexus and have been utilized in interest free advances. In the instant case, the Revenue has not established any such direct nexus which establishes that interest bearing funds have been utilized for the purposes of making interest free advances. Secondly, the AO has held that assessee has not received any interest income from the partnership firm which we found factually not correct as the assessee has received interest from partnership firm of ₹ 11,24,110/-. In light of the same, the disallowance of interest amounting to ₹ 13,77,391/- is hereby deleted and the ground of appeal so taken by the assessee is allowed. In the result, all the appeals file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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