TMI Blog2021 (2) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... cases where some persons were found indulged in providing accommodation entry. 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. Mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record -when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified - Decided in favour of assessee. - ITA No. 223/JP/2020, ITA No. 222/JP/2020 - - - Dated:- 9-2-2021 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri B. P. Mundra (CA) For the Revenue : Smt. Runi Pal (Addl. CIT) ORDER PER: VIKRAM SINGH YADAV, A.M. These are two appeals filed by the aforesaid assessees against the respective orders of ld. CIT(A)-1, Jaipur dated 16.01.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the shares of various entities including M/s. Kailash Auto Finance Ltd. treated the claim of Long Term Capital Gain as sham and bogus and made the addition of Long Term Capital Gain under section 68 of the IT Act as undisclosed cash credit as well as an addition of ₹ 47,413/- being commission paid for acquiring such accommodation entry. The assessee challenged the action of the AO before the ld. CIT (A) and referred to the documentary evidence of purchasing of shares against the payment through banking channel, the shares were duly dematerialized in the demat account of the assessee and thereafter the erstwhile company M/s. Careful Projects Advisory Ltd. was merged with M/s. Kailash Auto Finance Ltd. by virtue of a judgment of Hon'ble Allahabad High Court and consequently the shares of M/s. Kailash Auto Finance Ltd. were allotted to the assessee in lieu of the shares of M/s. Careful Projects Advisory Ltd. The ld CIT(A) however sustained the addition made by the AO. Aggrieved by the order of ld. CIT (A), the assessee is in appeal before us. 4. During the course of hearing, the ld. A/R has submitted that the assessee has established the genuineness of the transaction b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be used against the assessee. It was submitted that the assessee has submitted all the relevant facts and evidences before the AO and the ld CIT(A) and no adverse finding has been recording disproving such material evidences placed on record. It was submitted that the AO in the entire assessment order has not made reference to any single documentary evidence which can be said to be incriminating material against the assessee to show that the assessee has availed any accommodation entry of bogus LTCG. It was submitted that mere suspicion cannot be a ground for treating the transaction as bogus in absence of any evidence or material on record. The ld. A/R has relied upon the following decisions:- CIT vs. Smt. Pooja Agarwal (DB Appeal No. 385/2011 dated 11.09.2017) PCIT vs Pramod Jain others (DB Appeal No. 209/2018 dated 24.07.2018) Manish Kumar Baid vs. ACIT (1236/KOL/2017 dated 18.08.2017) Meghraj Singh Shekhawat vs. DCIT (ITA No. 444/JP/17 dated 07.03.2018) 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) 5. In her submissions, the ld. D/R has submitted that during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. She has 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). 6. In his rejoinder, the ld. A/R submitted that the decision relied upon by the ld. D/R 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 purchase of share holding in Demat account, payment of purchase consideration as well as receipt of the sale consideration through banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the purchase of shares by the assessee of M/s. Careful Projects Advisory Ltd cannot be disputed due to the reason that certain persons were indulged in providing accommodation entries in the shares of M/s. Kailash Auto Finance Ltd. It is not the case of purchase of shares of M/s. Kailash Auto Finance Ltd. but the assessee was allotted the shares of the said company by virtue of merger and in lieu of the shares of M/s. Careful Projects Advisory Ltd. Further, the AO has given much emphasis to the statement of Shri Sunil Dokania recorded by the Investigation Wing Kolkata on 06.03.2013 and 12.06.2015 whereas the shares of M/s. Careful Projects Advisory Ltd. were purchased on 24.11.2011. Therefore, even if Shri Sunil Dokania has accepted the activity of providing accommodation entries in the shares of M/s. Kailash Auto Finance Ltd., but when the assessee has not purchased the shares of the said company, then the transaction of the assessee cannot be doubted on the basis of the said statement. Even otherwise, when the assessee has produced documentary evidence which is neither found to be bogus or the correctness of the same is doubted by the AO, the said documentary evidence is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said 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 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 lower authorities apart from placing the copy of SEBI's interim order supra. We find that the SEBI's orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee. 9. Thus the Coordinate Bench in the aforesaid case after considering all the material, which were relied upon by the AO including the order of SEBI held that the order of SEBI is no evidence against the assessee. Further, when the assessee furnished all evidences in the form of bill, contract note, demat statement, bank account statement to prove the genuineness of the transaction, then in the absence of any finding by the AO to show that these documents are either bogus or fabricated, the claim of the assessee cannot be treated as bogus. 10. The Coordinate Jaipur Benches of the Tribunal in case of DCIT vs. Saurabh Mittal (ITA No. 16/JP/2018 dated 29.08.2018) has also considered an identical issue of Long Term Capital Gain on sale of shares of M/s. Kailash Auto Finance Ltd and in para 6 has held as under :- 6. We have heard the rival submissions as well the relevant material on record. The assessee stated to have purchased three lacs shares of Careful Projects Advisory Ltd. for a consideration of ₹ 3.00 lacs vide invoice da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Sanskriti Vincom Pvt. Ltd. through whom the assessee purchased these shares. Thus, even if three persons are considered to have indulged in the transaction of providing accommodation entries, it would not automatically lead to the conclusion that each and every transaction in purchase and sale of shares of those companies are bogus transactions, which were between the some other parties not connected with those operators. Even otherwise in the case in hand, the assessee did not purchase the shares of M/s Kailash Auto Finance Ltd. but the assessee purchased the shares of Careful Projects Advisory Ltd. and M/s Panchshul Marketing Ltd.. These two companies were subsequently amalgamated with M/s Kailash Auto Finance Ltd. in pursuant to the scheme of amalgamation approved by the Hon ble Allahabad High Court as well as the Hon ble Bombay High Court vide their respective decisions dated 09th 10th May, 2013. Consequently, the assessee was allotted equal number of shares of the amalgamated entries of M/s Kailash Auto Finance Limited in lieu of the shares held by the assessee in erstwhile two companies namely Careful Projects Advisory Ltd. and Panchshul Marketing Ltd.. The allotment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atements recorded by the Investigation Wing, Kolkata, however, even if those statements are considered and taken into account, it cannot lead to the conclusion or establish the fact that the assessee was part of the said racket of providing accommodation entries of bogus capital gain. We further note that this Tribunal has also considered the similar issue in the case of Shri Pramod Jain Vs DCIT (supra) and Shri Meghraj Singh Shekhawat Vs DCIT (Supra). In the case of Shri Meghraj Singh Shekhawat Vs DCIT (supra), the Tribunal vide order dated 07/3/2018 has held in para 5 and 6 as under:- 5. We have considered the rival submissions as well as relevant material on record. The assessee has produced record of allotment of 3,50,000 equity shares of M/s Rutron International Ltd. under preferential issue at par of face value of ₹ 10/- each vide allotment letter dated 08.03.2012. The Assessing Officer has not disputed the genuineness of the letter of allotment issued by the company to the assessee wherein it has been communicated that the assessee has been allotted 3,50,000 equity shares vide allotment letter dated 08.03.2012 against the application of the assessee at par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction 1. First Financial Services Ltd. Brokerage and Consultancy Services 2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy Services 3. Fact Enterprises Ltd Broking as well as share holding 4. Rutron International Ltd. Consultancy Services 5. D.B. (International) Stock Brokers Ltd. Consultancy Services 6. Unisys Software Holding Industries ltd. Broking Services Apart from the above mentioned companies neither I nor M/s Comfort Securities Ltd. has any business nexus with the companies mentioned supra. Q5. Do you know the promoters and directors of the above said companies? Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the promoters and directors of the above said companies or have ever had any business transactions with the promoters and directors of the above said companies. Ans. Sir, I know some of the directors of the First Financial Services L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there 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. Further, Shir Anil Agrawal was not a director of M/s Rutron International Ltd. as perceived by the AO and therefore, the entire finding of the AO is without any corroborative evidence or tangible material. 6. The assessee has specifically demanded the cross examined to Shri Anil Agrawal which was denied by the AO as under :- (ii) The assessee s pleas that effective opportunity may be provided to cross examination. In this regard, it is pointed out that the Hon ble Supreme Court in the case of C.Vasantlal Co. v/s CIT 45 ITR 206 (SC) (3 Judge Bench) has observed that the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the holding of the shares of the M/s Gravity Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee. 7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of ₹ 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of ₹ 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- 3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards. 4. As regard your opportunity given to us to read the recorded statement of Shri Deepak Patwari and to produce him from the cross examination before your good self, we have to submit that from the reading of the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 extraction the appellant wanted from them. 7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce Ind. Ltd., assessee's account with P.K. Agarwal co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account. Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ ₹ 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon ble jurisdiction High court in case of CIT vs. Smt. Pooja Agarwal (supra) as held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares. Sale of shares from the DEMAT account through stock exchange and at the prevailing price as on the date of sale and further payment of STT on the transaction of sale has been duly established. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing, Kolkata is not sufficient to establish the fact that the transaction is bogus. The finding of the Assessing Officer is based merely on the suspicion and surmises without any tangible material to show that the assessee has introduced his own unaccounted income in the share of long term capital gain even otherwise the reliance of the statements recorded by the Investigation Wing, Kolkata wherein without giving an opportunity of cross examination is a complete violation of principles of natural justice as held by the Hon'ble Supreme Court in the case of CCE Vs Andaman Timber Industries (Supra). The Coordinate Bench has also followed the decision of the Hon ble Jurisdictional High Court in the case of CIT Vs. Pooja Agarwal order dated 11/09/2017 wherein the Hon'ble High Court has duly considered the fact that the Assessing Officer has not brought any material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Jurisdictional High Court and that of the Hon ble Delhi High Court in case of Suman Poddar (supra), it has held as under: 5. We have considered the rival submissions as well as the relevant material on record. The AO has doubted the transactions of purchase and sale of shares by the assessee of M/s. PSIT Infra based on the investigation carried out by the DDIT Kolkata and Delhi 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 IT 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee produced the copy of purchase bill of these shares along with the bank statement showing the purchase consideration paid by the assessee through cheque. The bank account of the assessee has reflected the payment of ₹ 2,60,000/- for purchase of shares. The AO has not disputed that subsequently there were events of amalgamation of the company with M/s. Parag Shilpa Investments Ltd. and thereafter the shares were split from 1 share of ₹ 10/- each to 10 shares of ₹ 1/- each and consequently the assessee was allotted 65,000 shares as against 6,500 shares originally acquired. The shares acquired by the assessee are duly reflected in the Demat account of the assessee. Once the shares are dematerialized and credited in the Demat account of the assessee, the holding of the shares by the assessee cannot be disputed. It is also not in dispute that out of 65,000 shares held in the Demat account of the assessee, only 38,300 shares were sold during the year under consideration in 3 lots i.e. 1st lot of 5300 shares were sold on 1st December, 2014, 2nd lot of 27,000 shares were sold on 5th December, 2014 and 3rd lot of 6000 shares were sold on 19th March, 2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 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 statement, Demat account, books of account and bills 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 not prepared or beyond the scope of any manipulation by the assessee, then the assessee has discharged his onus to prove the transaction of purchase and sale of shares and consequential capital gain. As we have already mentioned that this is not an isolated transaction of purchase and sale of shares in single scrip, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as unexplained cash credit is hereby directed to be deleted. The matter is accordingly decided in favour of the assessee and against the Revenue. In the result, the ground no.1 is allowed. 14. Ground No. 2 of the assessee s appeal is regarding the addition made by the Assessing Officer on account of notional commission expenses U/s 69C of the Act. 15. We have heard both the parties and considered the relevant material on record. This is a consequential issue to the addition made by the Assessing Officer U/s 68 of the Act treating long term capital gain as accommodation entries for bogus claim of exempt income and consequently the Assessing Officer has also made an addition on account of expenditure of ₹ 47,413/- being unexplained commission expenses on such transaction of accommodation entries. Being a consequential issue to the issue involved in ground No. 1 of the appeal which has been decided in favour of the assessee, this ground is decided in favour of the assessee and against the Revenue. 16. In the result, appeal of the assessee is allowed. ITA No. 222/JP/2020 17. Both the parties fairly submitted that the facts and circumstances of this case is e ..... 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