TMI Blog2020 (11) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... minating material found or seized during the course of search and seizure action u/s 132 of the Act. See KABUL CHAWLA [ 2015 (9) TMI 80 - DELHI HIGH COURT] . - Decided in favour of assessee. Addition u/s 68 on account of bogus LTCG - denial of claim of exemption under section 10(38) in respect of sale of shares - addition u/s 69C made by the AO on account of unexplained commission expenditure for taking bogus accommodation entry in the form of LTCG - HELD THAT:- In the instant case, we note that the assessee satisfies the necessary ingredients and conditions as so specified in section 10(38) of the Act, in terms of transfer of long term capital asset by way of sale of equity shares on which STT has been paid, he shall therefore be eligible for exemption on whole of the income so realized as the provisions talks about any income arising from transfer of such long term capital asset which shall be exempt from tax. We accordingly donot see any infirmity or illegality in the said findings of the ld CIT(A). As relying on SHRI VIJAYRATTAN BALKRISHAN MITTAL, [ 2019 (10) TMI 439 - ITAT MUMBAI] we find that evidence produced by the assessee in support of his claim of purchase and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A), was right in deleting the addition of ₹ 3,60,05,017/- made u/s 68 on account of bogus LTCG. 3. Whether on the facts and in the circumstances of the case, the CIT(A) was right in deleting the addition of ₹ 7,20,100/- u/s 69C of the IT Act, 1961 made by the AO on account of unexplained commission expenditure for taking bogus accommodation entry in the form of LTCG without appreciating the facts of the case. 4. Whether on the facts and in the circumstances of the case, the CIT(A) was right in adjudicating that AO has predominately relied on the statement of entry provider and information received from Investigation Wing only without appreciating the facts that the financial fundamentals of the company has also been analyzed in the assessment order with categorical finding that company does not have profit earning apparatus. 5. Whether on the facts and the circumstances of the case, ld. CIT(A) was right in adjudicating that the AO has discussed the abnormal price in the share price of penny stock without any underline fundamental without appreciating the facts that the financial fundamentals of the company including P L account, Balance Sheet a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld CIT(A) that the additions were made by the Assessing officer without reference to incriminating evidence/material while passing the order under section 143(3) r/w 153A of the Act and thus allowing the legal ground taken by the assessee challenging the order so passed by the Assessing officer. 4. In this regard, briefly stated, the facts of the case are that the assessee filed his return of income u/s 139(1) of the Act on 30.08.2015 declaring total income of ₹ 23,78,450/-. Thereafter, a search and seizure action u/s 132 was carried out in case of Prakash Deep Finance Group on 04.03.2017 to which the assessee belongs. Pursuant to the search and seizure action, the Assessing Officer issued notice u/s 153A of the Act on 13.09.2017 and in response to the said notice, the assessee e-filed his return of income on 03.10.2017 declaring total income of ₹ 23,78,450/- as declared in the return of income originally filed u/s 139(1) of the Act. Thereafter, notice u/s 143(2) of the Act as well as notices u/s 142(1) of the Act were issued and the Assessing Officer disallowed the long term capital gains exemption amounting to ₹ 3,60,05,017/- claimed by the assessee u/s 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Section 153A of the Act, the AO has proceeded in accordance with the provisions of law. It was further submitted that the script of M/s Misika Finance and Trading Company and assessee were banned from accessing the security market and buying, selling in securities vide SEBI order dated 17.05.2015 which lead to suspicion on bogus claim of LTCG hence the same tantamount to incriminating evidence and where the AO has relied on the same while framing the assessment, the same needs to be upheld. It was further submitted by the ld. CIT/DR that in case of Meeta Gutgutia, though SLP of the Department has been dismissed by the Hon ble Supreme Court, however, merely dismissal of the SLP cannot be read as affirmation of the view taken by the Hon ble Delhi High Court. It was further submitted that there are two subsequent SLPs which have been admitted by the Hon ble Supreme Court on similar matters and therefore, the Department is not accepting the position taken in case of Meeta Gutgutia and other decisions cited by the ld. AR. He has accordingly relied upon the order and the findings of the Assessing officer. 7. On the other hand, ld. AR has submitted that the assessee is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of notice u/s 143(2) was upto 30.09.2016. No notice was however issued to the assessee before this date. Thus, the assessment proceedings for the year under consideration were not pending on the date of search. In search, no incriminating material relating to the year under consideration was found to allege that the assessee had undisclosed income from any source which is routed through alleged accommodation entry. Section 153A empowers the AO to issue notice to a person who is searched u/s 132 to file return in respect of six assessment years preceding the assessment year in which search is conducted and to assess or reassess the total income of these years notwithstanding anything contained in section 139, 147 and other related sections. Thus, the assessment u/s 153A are not de novo assessments since the purpose of making the reassessment under section 153A is to bring to tax, hitherto undisclosed income unearthed during the course of the search. It is for this reason that the second proviso to section 153A(1) provides only for the abatement of the pending assessments. This is done to ensure that the regular assessment proceedings under the normal provisions and the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding on the date of search, the same shall be abated as per proviso to section 153A(1) of the Act and the AO is free to assess the income of the assessee as regular assessment. However, in case of completed assessment and not abated due to initiation of search u/s 132 or making of requisition u/s 132A, the AO has to reassess the total income of the assessee and therefore, the assessment already completed can be tinkered with or disturbed where any incriminating material is found and seized during the course of search or requisition as case may be, indicating undisclosed income of the assessee. Therefore, the scope and jurisdiction of the AO to reassess the total income of the assessee u/s 153A is limited only to the extent of the income disclosed by the incriminating material found and seized during the search and seizure action in case of the assessee. Therefore, what is the relevant to determine in the instant case is whether any incriminating material/evidence was found during the course of search in the case of the assessee and basis which the additions have been made by the Assessing officer. 10. The ld CIT/DR has referred to the information received by the AO from Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Accordingly, in the facts and circumstances of the case and in view of the binding precedents on this issue in which the SLP filed by the revenue was also dismissed by the Hon ble Supreme Court, the additions made by the AO while passing the assessment orders under section 153A for the assessment years 2010-11 to 13-14 are not sustainable and accordingly the same are liable to be deleted. 11. The ld CIT/DR has further referred to SEBI order dated 17.05.2015 wherein the script of M/s Misika Finance and Trading Company and various persons including the assessee were banned from accessing the security market and in buying and selling of securities. We find that the aforesaid SEBI order dated 17.05.2015 was again available with the AO prior to the search in case of the assessee and following the aforesaid reasoning may be considered as a relevant evidence but cannot be regarded as incriminating material unearthed during the course of search and seizure u/s 132 in case of the assessee which were conducted on 4.03.2017. 12. We ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the total income of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are pending on the date of initiation of the search or making requisition shall abate . Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. 27. The Allahabad High Court in Smt. Shaila Agarwal's (supra) has held as under:- 19. The second proviso to Section 153A of the Act, refers to abatement of the pending assessment or re-assessment proceedings. The word 'pending' does not operate any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equisition is required to be made. 15. In light of above discussions and in the entirety of facts and circumstances of the case where the reassessment is completed u/s 153A without any reference to the incriminating material found during the course of search, following the binding precedents as cited above including that of the Jurisdictional High Court, the addition made by the AO by disallowing the claim of exemption u/s 10(38) is not sustainable in the eyes of law. We accordingly affirm the findings of the ld CIT(A) who has rightly appreciated the facts of the present case and has followed the legal proposition so laid down by the various Courts and as followed consistently by various Benches including the Jaipur Benches of the Tribunal. In the result, the ground of appeal so taken by the Revenue is hereby dismissed. 16. Now, coming to other grounds of appeal no. 2 - 8 raised by the Revenue. All these grounds of appeal effectively relates to addition of ₹ 3,60,05,017/- made u/s 68 on account of bogus LTCG made by the AO by denial of claim of exemption under section 10(38) in respect of sale of shares of Mishka Finance Trading Ltd and the consequential addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been manifestly accepted by them that such penny stock companies are the conduit for converting untaxed money brought on record by paying no taxes in the garb of exempted income. It is further detected that M/s Mishka Finance Trading Ltd. (scrip code-512191) is a penny stock listed company. The assessee bought these shares at a meagre price. The price of the shares kept rising throughout the period when the shares were held by the assessee. The share price movement the profit earned by the beneficiaries were beyond human probabilities. The AO, thereafter, at pages 4 to 15 discussed the financial results and held that the rise in the price could not be related to the fundamentals. On pages 16 to 41, he gave the trend of the share price. On pages 42 to 62, he referred to the statement of Sh. Sanjay Vora Sh. Deepak Patwari recorded during survey operation carried out in case of M/s Anand Rathi Shares Stock Brokers Ltd. Kolkata wherein they accepted the actual fact of these transactions. Thereafter, on pages 67 to 69, he discussed the modus operandi. The AO further observed that SEBI has suspended this particular scrip from trading in BSE/NSE w.e.f. 17.04.2015. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be sole basis of the assessment without giving an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. Thereafter, based on aforesaid reasoning and findings and after relying on the various case laws referred at Pg 55-63 of his order, ld. CIT(A) held that the action of AO in denying the claim of exemption u/s 10(38) of the Act is not tenable and hence, the same was directed to be deleted. Further, since the commission is based on estimated addition of alleged bogus LTCG now treated as genuine, amount of commission was also directed to be deleted. Against the said findings, the Revenue is now in appeal before us. 20. During the course of hearing, the ld. DR submitted that the AO has discussed all the relevant facts in the assessment order as well as the modus operandi of various entry providers as detected by the Department during the investigation carried out by the Directorate of Investigation, Kolkata, Delhi etc. Thus it comes to the light that large scale manipulation has been done in the market price of shares of certain companies listed on Bombay Stock Exchange by a group of persons working as syndicate for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ga Prasad More. The ld. CIT 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. CIT 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 also pointed out that the SLP filed by the assessee against the judgment of the Hon ble Delhi High Court has been dismissed by the Hon ble Supreme Court reported in 112 taxmann.com 330 (SC). 21. Per contra, the ld. AR submitted that the addition has been made by the AO on the basis of statement of certain persons recorded in the survey conducted by the Investigation Wing Kolkata on M/s Anand Rathi Shares and Stock Brokers Limited, order of SEBI whereby it restrained 129 entities including M/s Mishka Finance and Trading Ltd. and its promoters from accessing the securities market and prohibiting them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further directions and the rise in price of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scrip. After preliminary examination, SEBI passed an interim ex-parte order dated April 17, 2015 and restrained 129 entities including Mishka and its promoters and directors from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever till further directions. Subsequently SEBI vide order dated dt. 05.10.2017 after detailed enquiries found that there is no adverse material against 104 entities mentioned at S. No. 1-104 in Table No. 2 of order with respect to their role in the price manipulation / prima facie violations for which interim order dated April 17, 2015 was passed and thus revoked the restrained order with reference to these entities. At Table No. 2, Page No. 6 of the order, the name of assessee is appearing. This proves beyond doubt that the assessee is a genuine investor in the script of M/s Mishka Finance and Trading Ltd. 24. It was further submitted that the AO has referred to the financials of M/s Pyramid Trading and Finance Ltd. at Pg 4 to 6 of the assessment order. From the same, it can be noted that during FY 2012-13 when assessee purchased the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahavir Jhanwar Vs. ITO (2019) 55 CCH 150 (Kol.) (Trib.) Arun Kumar Ors. Vs. ACIT (ITA No.457/Del/2018, 2825/Del/2018 and 2826/Del/2018 order dt. 05.11.2018) DCIT Vs. Rakesh Saraogi Sons (HUF) (2018) 32 NYPTTJ 1116 (Raipur) (Trib.) 26. The ld. AR further submitted that the decision relied upon by the ld. CIT/DR in case of Suman Poddar vs. ITO (supra) is not applicable in the facts of the assessee s case as in the said case it was a finding of fact by the Tribunal holding that the assessee has failed to produce any evidence of actual sale except the Contract Notes issued by the share broker whereas in the case of the assessee, the assessee produced all the documentary evidences right from allotment of shares, holding in Demat account, payment of purchase consideration, contract notes as well as receipt of the sale consideration through banking channel, thus the said decision cannot be applied in the present case. On the other hand, the decisions of the Hon ble Jurisdictional High Court in case of CIT vs. Smt. Pooja Agarwal in DBIT Appeal No. 209/2018 dated 24.07.2018 as well as PCIT vs. Shri Pramod Jain Others in DBIT Appeal No. 385/2011 dated 11.09.2011 are bin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of face value of ₹ 10/- per share at a premium of ₹ 75/- per share. The payment was made by account payee cheque bearing no. 397519 dated 18.09.2012 drawn on SBBJ, M.I, Road, Jaipur. The shares were thereafter allotted by the company on 24.09.2012 and necessary regulatory filings in terms of Form 2 along with Board s resolution have been placed on record. Thereafter, the name of company was changed to M/s Mishka Finance and Trading Ltd. and on 20.11.2012, these shares were credited in the demat account of the assessee in the name of M/s Mishka Finance and Trading Ltd. Thus it is clear that 12,500 shares were acquired by the assessee on 18.09.2012 and were credited in the demat account of the assessee. The AO has not disputed that subsequently in Feb.2013, the company announced bonus of 7 shares for every 1 shares and accordingly, 87,500 bonus shares were credited in the demat account of the assessee on 15.02.2013. Subsequently, on 18.01.2014, the face value of ₹ 10 per share was split into ₹ 1 per share and accordingly, 10,00,000 shares were credited in the demat account of assessee. Once the shares are dematerialized and credited in the demat account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of fact returned against the Appellant are based on evidence on record. Thus it is clear that in the said case, the Tribunal s finding is based on the fact that no evidence of actual sale except the contract notes issued by the share broker was produced by the assessee. In those facts, the Hon ble High Court has held that no question of law arises in the said case. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction. Even if the AO doubted the transaction, then to establish that the transaction is bogus, the AO is required to produce the contrary material evidence so that the evidence produced by the assessee can be controverted. In the absence of such contrary material or evidence brought on record by the AO and the evidence produced by the assessee is otherwise independently verifiable being the documents in the shape of bank statements, Demat account, contract notes reflecting the transaction executed on the stock exchange for which the assessee has no control or say, therefore, the said evidence cannot be manipulated by the assessee. Once the evidence produced by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions submitted by the Ld. A/R and the order of AO. I have also gone through various judgments cited by the Ld. A/R and those contained in the order of AO. I have also gone through the APB from page 1 to 55. After careful perusal of Ld. AO order and submissions I am not in agreement with the conclusion drawn by the Ld. AO for the following reasons: 7.3 The Ld. A/R has filed all the possible documentary evidence relating to purchase and sale of the stock on which the LTCG was earned. All the details are filed in APB and the same were filed before the Ld. AO. The details filed are Description APB Pages Copy of allotment of shares 8 Evidence relating to purchase of share 9 Copy of bank statement evidencing payment for purchase 10-11 Copy of demat account 12-16 Copy of bank statement wherein sale proceeds were received 25-29 Copy of contract notes for sale of shares 21-24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as unexplained money. It was further observed by the Hon'ble ITAT Delhi 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. Once all these transactions are duly proved by trading from stock exchange, then to hold the sale of shares as unexplained credit or as unexplained money cannot be upheld. It was also pointed out that though the SEBI banned the trading in the share of Miskha finance in the interim order but in the final order passed by the SEBI said interim ban was lifted and the script and associated persons were exonerated. The final order of the SEBI is placed on the record by the learned A/R. 7.6 The relevant para of SEBI Report are para 9 10. In these para the SEBI has especially exonerated Smt. Kalawati Sharma (appellant) Shri Prakash Chand Sharma. The relevant para is reproduced herein as under: 9. In view of the foregoing, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dated October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Before proceeding with the matter, it will not be out of place to mention that except the statement in the letter, the AO has no other material on record to assess the income of ₹ 1,82,00,000/-. 11. It is settled proposition of law that merely on the statement that too also was taken in view of threat given in question No.36 as narrated by Mr. Gupta and the same sought to have been relied upon, there is no other material either in the form of cash, bullion, jewellery or document in any other form which can come to the conclusion that the statement made was supported by some documentary evldence. We have gone through the record and find that the CIT (A) has rightly observed as stated hereinabove, which was confirmed by the Tribunal. It would not be out of place to mention that this order of Hon'ble Rajasthan High Court has been confirmed by Hon'ble Supreme Court also. Further, Hon'ble Delhi High court in case of Harjeev Agarwal (70 Taxmann.com 95) held thus: Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi) ...A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained by this Court in Harjeev Aggarwal (supra). 8.2 Further, the Ld. A/R has also taken a legal plea that no cross examination of the person, whose statement was relied upon, was granted despite specific request made to the AO. The aspect of not granting cross examination has specifically been answered by the Hon'ble ITAT Jaipur in the case of Shri Pramod Jain. The relevant extract on the issue is as under: As regard 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. Radhakrishnana, learned senor 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 to be borne in mind that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Notice. 8.3 Therefore, the statement of witness 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. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to conslder the addition made by the AO on the basis of suspicion and suiiiiises 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 expense and it was their liability as per their mutual understanding with the assessee. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borately dealt with by Hon'ble High Court of Rajasthan and also Hon'ble ITAT Jaipur. Both jurisdictional High Court and tribunal have given judgments directly on the issue, gist of some of which is as under (i) PCIT V. Pramod Jain Others DB Appeal No.209/2018 dated 24-07-2018 (Raj) In this case the Hon'ble ITAT after relying on the decision of Hon'ble Rajasthan High Court in case of CIT vs. Smt. Pooja Agarwal and various other decisions deleted the addition made by the AO by holding as under: 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 del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provlder as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushi! Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after consldering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary. The findings as recorded by the appellate authorities, after thorough conslderation of material on record that the transaction of purchase and sale of shares could not be treated as non-genuine was justified. No substantial question of law worth conslderation in present case. The findings as concurrently recorded by the CIT(A) and the ITAT, that addition under Section 68 of the Act was not sustainable, remain essentially in the realm of appreciation of evldence. The Appellate Authorities have returned the finding of fact in favour of the assessee after due appreciation of evldence on record, on relevant conslderations, and on sound reasoning. The finding neither appears suffering from any perversity nor is of such nature that cannot be reached at all. Hence, no substantial question of law is involved in this appeal. Shri Meghraj Singh Shekhawat vs. DCIT (2017) 443 444/JP/2017 (JP) order dated 7-03-2018 Brief facts are that the assessee is an indivldual and engaged in the business of retail sale of IMFL/Beer. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of ₹ 1,32,56,113/-which is claimed as exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accommodation entries from the persons who are engaged in provlding bogus accommodation entries of capital gains. The Hon'ble ITAT held that the facts of the present case acquiring of shares of M/s. Parldhi Properties Ltd. under private placement directly from the company and subsequently on merger of the sald company with M/s. Luminaire Technologies Ltd. the shares of the new entity were allotted to the assessee which were duly dematerialized and then sold from the Demat account are ldentical to the case of ShriPramod Jain Others vs. DCIT others. In view of the finding of the Coordinate Bench on the ldentical issue, it was found that when the payment of purchase conslderation pald through cheque directly to the company and the subsequent merger of the company as per the scheme of merger approved by the High Court, then the transaction and sale of shares in question cannot be held as bogus. The AO has passed the impugned order on the basis of the statement of Shri Deepak Patwari which is ldentical as in the case of Shri Pramod Jain others vs. DCIT. Accordingly, following the order of the Coordinate Bench of this Tribunal, we hold that the addition made by the AO is merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Ltd name is neither mentioned in the sald statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our consldered opinion, has no legs to stand in the eyes of the law. The enquiry by the investigation Wing in connection with the alleged bogus transaction in shares also dld not implicate the assessee and / or his broker. It is also a matter of record that the assessee has furnished all evldences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evldences were neither found by the ld AO to be false or fabricated. The facts of the case and the evldences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonaflde and therefore the ld AO was not justified in rejecting the assessee's claim of exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and Trading Ltd. 9. On the facts and in the circumstances of the case, the appeals are thus allowed. 30. Thus, it is clear that the ld. CIT(A) has given his detailed findings based on the various documentary evidences produced by the assessee in support of his claim and further he has relied upon various decisions of this Tribunal as well as the decision of Hon ble Jurisdictional High Court including the decision in case of CIT vs. Pooja Agarwal (supra) as well as in case of PCIT vs. Pramod Jain Others (supra). Regarding CIT/DR s contentions regarding the abnormal rise in the share price of the shares, the ld CIT(A) has referred to the decision of the Coordinate Bench in case of Mukta Gupta Vs. ITO (supra) wherein it was held that the 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 where 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. Further, in the instant case, we note that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 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 at low price either through private placement or on merger of private limited company of which such person is a shareholder with a penny stock company. Thereafter unaccounted money flows to operator s / exit providers who artificia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by way of search did not reveal any connection with the findings or evidences as referred to in such reports. 12. He stated that the statements of Anil Khemka Sanjay Dey and Mandar Naik relied upon the AO does not establish that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uineness 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 of PAL who in turn sold the shares on BSE platform. The assessee/his broker were not aware about the buyers or their brokers who purchased the shares of PAL sold by the assessee. The allegation of AO in para 7.2 and 7.3 of the Assessment order that that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 SE or the clearing system. In nutshell, the buyer s broker makes payment to SE and seller s brokers deliver shares to the SE. Thereafter, settlement is done by clearing system and transfer of amounts online to seller s brokers bank account and shares to buyer's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investigation the department had made exhaustive survey and enquiry for these transactions from Geojit and other brokers and nothing incriminating was found against the assessee. The details, documents and third party evidences supporting the sale transactions and payments received have been f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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: - Sr. No. Name of Exit Provider 121 Dhriti Traders PL 127 Dreamvalley Trading FL 162 Signet Vinimay PL 165 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 genuineness of the transactions, the assessee provided all the supporting evidences like, share application form, bank statement highlighting the transactions, contract notes, broker's ledger, demat statement Form 10DB, SEBI's final order, SAT Order, etc. 26. However, the AO made addition under section 68 of the Act and CIT(A) confirmed the addition by ignoring al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exchange recognized by the market regulator SEBI. The documents have been accepted by the AO. b) Bank statement showing sale proceeds credited by the broker Geojit. Demat account of the assessee showing sold shares debited / transferred to broker. c) The sale consideration is received by assessee from Geojit, a registered broker of SEBI/BSE, with who has been dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the payer, source of the credit, evidences of the transactions to prove the genuineness, the assessee is said to have discharged his initial burden. In view of the above, we are of the view that the assessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in the bank account of the assessee and also furnished all evidences comprising con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter 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 could be safely concluded that the decision of Hon ble Bombay High Court supra is factually distinguishable. 31. Now we will discuss the modus operandi, preponderance of probability and human behavior. We noted that the AO as well as CIT(A) have rejected all evidences filed by the assessee by referring to 'Modus Operandi of persons for earning long term capital gains which is exempt from Income tax under section 10(38) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 beneficiaries of LTCG. Each case has to be assessed based on principles of legal import laid down by the Courts of law. 34. 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment 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 transaction. However, the AO 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. 36. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram v. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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. Hence, we delete the addition made by the AO by setting aside the order of ld. CIT(A) based upon such findings. This common issue as regards to addition under section 68 of surplus arising out of sale of shares of listed companies and consequent addition under section 69C on the presumption that commission at the rate of 3% was paid is hereby deleted. Accordingly, this common and interconnected issue of the four assessee s appeals is allowed. 38. Similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roves assessee s connection, involvement or collusion with so called accommodation entry providers. Further in the aforesaid case, the issue as to whether 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 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 agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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