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TMI Blog2020 (12) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,55,14,762/-) by invoking provisions of Sec. 68 of the Income Tax Act 1961, being the amount of sale value of shares as per the grounds stated in the order or otherwise. 3. On the facts and circumstances of the Appellant's case and in law, Id. CIT(A) erred in confirming the action of Assessing Officer in making an addition of Rs. 13,67,252/- as alleged commission @ 3% paid on bogus share transaction, as per the grounds stated in the order or otherwise. The appellant prays this Hon'ble Tribunal to delete the addition/disallowance made by the Learned Assessing Officer, which is confirmed by the Learned CIT (A). 3. The facts in brief are that the assessee filed the return of income on 26.03.2015 declaring total income of Rs. 2,97,090/- which was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. Subsequently, the AO on the basis of information available on Actionable Account Information Monitoring System (AIMS) and the investigation conducted by the Kolkata Investigation directorate brought out the fact that assessee is a beneficiary of bogus long term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the total sale proceeds and added the same as unexplained expenditure under section 69 of the Act to the income of the assessee by framing assessment under section 143(3) of the Act vide order dated 28.12.2016. 4. The assessee went in appeal before the Ld. CIT(A) who also dismissed the appeal of the assessee by treating the sale proceeds of shares as the transactions entered in the penny stocks in the form of accommodation entries and thus justified the addition of entire sale proceedings of the sale of shares of Global Infra Tech and Finance Ltd. beside making addition @ 3% of the transaction value as unexplained cash credit within the meaning of 68 and thus justified the addition. 5. The Ld. Counsel at the outset pointed out that the issue is squarely covered by the decision of co-ordinate Bench in ITA No.6249/M/2018 A.Y. 2014-15 in the case of Mukesh B. Sharma vs. ITO vide order dated 29.05.2019 wherein the same scripts i.e. Global Infratech and Finance Ltd. were involved and the co-ordinate Bench has under identical facts deleted the addition and held that the sale proceeds of said shares are not unexplained income of the assessee and thus rejected the conclusion drawn by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. Therefore, the Ld. D.R. prayed that the appeal of the assessee may kindly be dismissed and that of the Ld. CIT(A) may be affirmed. In defence of his argument, the Ld. D.R. relied on a series of decisions namely; 1. Satish Kishore vs. ITO (2019) 110 taxmann.com 307 (Delhi -Tri.) 2. Sandeep Bhargava vs. ACIT (2019) 109 taxmann.com 174 (Delhi - Tri.) 3. Smt MK Rajeswari vs. ITO Warda 3 Raichur (2018) 99 taxmann.com 339 (Bangalore -Tri.) 4. Sanjay Bimalchand Jain vs. PCIT (2018) 89 taxmann.com 196 (Bom.) The Ld. DR. submitted that in all these above decisions it has been held that the investment in penny stock is nothing but accommodation entries in the nature of dubious share transactions meant to account for undisclosed income in the garb of long term capital gain and therefore exemption under section 10(38) could not be granted. 7. We have heard the rival submissions and perused the material on record including impugned order. We find that in this case the assessee has purchased 50000 equity shares of Global Infratech and Finance Ltd. on 28.12.2011 formerly known as Asianlak Capital and Finance Ltd. at price of Rs. 15 each of face value of Rs. 10 each. The assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and copy of share certificate issued by GIFL to the assessee on 12.6.2012. These documents are enclosed in pages 71 to 73 of Paper Book. b) Demat account held with NKGSB Co-operative Bank Limited reflecting credit of shares purchased (enclosed in page 154 of Paper Book). c) Copy of approval letter from GIFL. d) Copy of allotment letter from GIFL for shares allotted to the assessee. e) Copy of share certificate issued by GIFL. f) Various events reported by GIFL to BSE. 6.1. The assessee submitted the following details with regard to sale of shares:- a) Copy of demat statement reflecting the sale of shares. b) Copies of Contract Notes issued by both the brokers for sale of shares. c) Copy of Holding Statement for financial years 2012-13 and 2013-14. d) Price chart of GIFL from the date of purchase of shares till the recent period. e) Copy of relevant extract of bank statement of the assessee reflecting the sale proceeds received from the broker and credited to the bank account. 6.2. We find that the assessee pleaded that in an online platform, there would be no nexus between the purchasers and the seller and the delivery of shares and payments would be made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains by transacting its own shares through the alleged bogus operators. We also find that the SEBI had passed on order dated 8.1.2018 in the case of GIFL, wherein it was found that the name of the assessee herein or the brokers through whom the assessee transacted were not even included in the said order as parties against whom any adverse inference / findings were found in respect of violation of provisions of SEBI. We find that SEBI had issued a show cause notice vide Reference SEBI/EAD-12/SM/EE/693/25/2018 dated 8.1.2018 which are enclosed in pages 252 to 266 of the paper book. In pages 257 and 258 of the Paper Book, the list of parties to whom show cause notices were issued by SEBI is listed out. In the entire list, neither the name of the assessee nor his brokers were included. Later there was another show cause notice vide Reference EFD/DRA3/OW/NB/6663/2018 dated 1.3.2018 was issued by Enforcement Department of SEBI mentioning the list of parties to whom show cause notices were issued. Even in this list, the name of the assessee or his broker was not included by SEBI. Hence it could be safely concluded that SEBI did not allege any wrong doing on the part of the assessee or h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the open market as bogus based on the statements recorded during survey, which does not have any evidentiary value. Reliance in this regard is placed on the decision of Hon'ble Madras High Court in the case of S.Khader Khan (2008) 300 ITR 157 (MAD) assumes significance, wherein it was held that:- "An admission is an extremely important piece of evidence , but it cannot be said that it is conclusive and it is open to the person , who made it, to show it has incorrectly been made and the person, making the statement should be given proper opportunity to show that it does not show the correct state of facts." The materials found in the course of survey could not be the basis for making any addition in the assessment. The word "may" used in section 133A(3)(iii) makes it clear that the material collected and statement recorded during the survey u/s 133A of the Act are not conclusive piece of evidences by itself. The aforesaid decision was affirmed by the Honourable Supreme Court in CIT , Salem vs S.Khader Khan in Civil Appeal No. 13224 of 2008 & 6747 of 2012 dated 20.9.2012, wherein their Lordships of Supreme Court held as under:- CIT vs S Khader Khan Son reported in (2012) 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO sought to issue summons to those alleged purchasers of shares u/s 131 of the Act, which remain uncomplied by those parties. Based on this, the ld AO had drawn an adverse inference against the assessee disregarding the entire documentary evidences on record and the prevailing market practices with regard to purchase and sale of shares in the open market in online platform. It is not in dispute that the assessee had received the sale proceeds of shares from the registered broker through the stock exchange only and not from the alleged purchasers of shares directly. Moreover, the ld AO states that the assessee had sold the shares at Rs. 211.76 per share whereas the average sale price of the assessee was only Rs. 89 per share. 6.8. We find that the ld DR made general submissions with regard to the investigations carried out by Kolkata Income Tax Department after identifying 84 scrips to be penny stocks and the modus operandi adopted by those scrips with the connivance of various entry operators, brokers and stock exchange. We find that the ld DR was not specifically able to controvert the documentary evidences filed by the assessee for purchase and sale of shares and various othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 5. In identical cases, the submission of the assessee, findings of the Assessing Officer, findings of the ld. CIT(A) and the conclusion of the Tribunal have been brought out as under:- 6. The addition was made by the Assessing Officer by observing as under:- i. The initial allotment of shares to beneficiaries is generally done through preferential allotment. ii. The market price of shares of these companies rise to very high level within a span of one year. iii. The trading volume of shares during the period, in which manipulations are done to raise the market price, is extremely thin. iv. Most of the purported investors are returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve after investigating such abnormal price increase of certain stocks, suspended certain scrips. c) The submissions of the assessee pointed out towards elaborate documentation such as : i) Application of shares. ii) Allotment of shares. iii) Share Certificates iv) Payment by cheques v) Filings before Registrar of Companies. vi) Proof of amalagamation of companies. vii) Copies of bank statement, viii) Bank contract notes. ix) Delivery instruction to the broker etc. d) The elaborate paper book is filed to strengthen the matter relevant to bogus claim of LTCG, and this is clearly been schemed and pre-planned with malafide intention. Therefore, all these documents are not evidence. e) The transactions are unnatural and highly suspicious. There are grave doubts in the story propounded by the assessee before the authorities below. Banking documents are mere self-serving recitals. 9. Thereafter he referred to a number of judgments relating to human behavior and preponderance of human probabilities and upheld the addition made by the Assessing Officer by relying on what he calls rules of "Suspicious transactions". 10. The assessee in this case has filed the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim in genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in quesiton was part of this scam. The chain of events and the live link of the assesee's action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence. 16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However we do not find that, the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact the investigation wing is a separate department which has not been assigned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,---this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448; Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131). 24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944, considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alteram partem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the Assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the Assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the Assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the Appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the Appellant wanted to cross-examine those dealers and what extract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal." [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed." b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No. 292/JP/2017] order dated 06.04.2018 held as under vide Page 9 Para 3: "We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT (A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act." Further in Page 15 Para 8.5 of the judgment, it held: "We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore direct the AO to delete the addition." f) The BENCH "A" OF KOLKATA ITAT in the case of SHALEEN KHEMANI [ITA No. 1945/Kol/2014] order dated 18.10.2017 held as under vide Page 24 Para 9.3: "We therefore 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 considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences 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 evidences were neither found by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed." i) The Hon'ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: "The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank." j) The Hon'ble Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress of both the companies were interestingly the same ; (iv) The authorized signatory of 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. 6.11. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs Mukesh Ratilal Marolia in ITA No. 456 of 2007 dated 7.9.2011 had held as under:- 5. On further appeal, the ITAT by the impugned order allowed the claim of the assessee by recording that the purchase of shares during the year 1999- 2000 and 2000-2001 were duly recorded in the books maintained by the Assessee. The ITAT has recoded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-ordinate Bench, set aside the order of Ld. CIT(A) and direct the AO to delete the addition made of Rs. 4,55,75,099/- made as unexplained cash credit under section 68 of the Act. 9. Consequently, the addition confirmed by the ld CIT(A) of Rs. 13,67,252/- as made by the AO towards the commission paid to operators @ 3% on the total sales consideration of shares of Rs. 4,55,75,099/- has to be deleted as we have held the long term capital gain to be genuine. Accordingly, we direct the AO to delete the addition of Rs. 13,67,252/-. 10. However, before we part with the matter, we would like to deal with one procedural issue as well. While hearing of this appeal was concluded on 4th March 2020, the order is being pronounced today on 6th day of August, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides for the same within a period of 90 days of the conclusion of the hearing. 11. It is quite clear that ordinarily the order on an appeal should be pronounced by the bench within no more than 90 days from the date of c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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