TMI Blog2021 (6) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... ther a penny stock nor a paper company, are of the considered view that as all the five assessee(s) namely Kumari Ayushi Nyati ,Smt. Vijay Nyati, Shri Vijay Kumar Radheshyam Nyati (HUF), Shri Manish Kumar Radheshyam Nyati (HUF), Smt. Mamta Nyati have discharged necessary onus casted upon them in terms of claim of exemption of Long Term Capital Gain u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the Long Term Capital Gain so arisen has been rightly claimed as exempt u/s 10(38) of the Act. Since we have held the transaction of Long Term Capital Gain as genuine no addition for estimated brokerage expense is thus called for in the case of Miss. Ayushi Nyati. We therefore allow the common issues raised in all the instant appeals in favour of the assessee(s) and set aside the order of Ld. CIT(A) and allow the claim of LTCG exemption u/s 10(38) of the Act from sale of equity shares of SAL and delete the addition. - Decided in favour of assessee. - ITA No.203/Ind/2019, ITA No.703/Ind/2018, ITA No.704/Ind/2018, ITA No.705/Ind/2018, ITA No.488/Ind/2019 - - - Dated:- 25-5-202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 and treating it as income from undisclosed sources by - (a) relying solely on the basis of statement of Shri Vipul Vidur Bhatt, recorded u/s 131 by A.D.I.T.(Inv)-4(3), Mumbai during the course of survey proceedings u/s 133A in the case of M/s Shipra Fabrics Pvt. Ltd., Mumbai. (b)using the statement of Shri Vipul Vidur Bhatt and not providing an opportunity of cross examination to the assessee which is against the principles of natural justice. (c) completely ignoring the well- established position of law that no addition can be made solely on the basis of statements recorded on oath during the course of survey proceedings u/s 133A having no evidentiary value. (d)simply on the basis of information received from A.D.I.T.(Inv), Mumbai, without making own independent enquiry and efforts. 3.That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. (iii) Grounds of appeal in ITA No.704/Ind/2018 - Shri Vijay Kumar Radheshyam Nyati, HUF 1. That the Ld. CIT(A) erred in upholding the action of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt u/s 10(38) of the I.T. Act, 1961 and treating it as income from undisclosed sources by - (a) relying solely on the basis of statement of Shri Vipul Vidur Bhatt, recorded u/s 131 by A.D.I.T.(Inv)-4(3), Mumbai during the course of survey proceedings u/s 133A in the case of M/s Shipra Fabrics Pvt. Ltd., Mumbai. (b)using the statement of Shri Vipul Vidur Bhatt and not providing an opportunity of cross examination to the assessee which is against the principles of natural justice. (c) completely ignoring the well- established position of law that no addition can be made solely on the basis of statements recorded on oath during the course of survey proceedings u/s 133A having no evidentiary value. (d)simply on the basis of information received from A.D.I.T.(Inv), Mumbai, without making own independent enquiry and efforts. 3. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. (v) Grounds of appeal in ITANo.488/Ind/2019 Smt. Mamta Nyati 1. That the Ld. CIT(A) erred in upholding the action of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 36,14,053/- was claimed as exempt income u/s 10(38) of the Act arising from sale of equity shares of M/s Sunrise Asian Limited (In short SAL ) listed at Bombay Stock Exchange. It was submitted by the assessee that the equity shares were held for more than 12 months, sale took place on a recognized stock exchange and shares were transferred from Demat account thus fulfilling all the conditions provided u/s 10(38) of the Act. But Ld. A.O was not convinced and he on the basis of information available with him acquired from third source which mainly included the outcome of Search Survey actions at various brokers of stock exchange across the country and the finding of Investigation Wing about bogus entries and manipulation through penny stock companies, concluded that M/s Sunrise Asian Limited is a penny stock company and the Long Term Capital Gain claimed by the assessee is merely an accommodation entry taken for converting unaccounted money into exempt income. Ld. A.O accordingly denied the benefit of exemption and added ₹ 36,14,053/- to the income of the assessee and addition also made for estimated brokerage expense of ₹ 72,281/- calculated @2% of the Long Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , / Arihant Capital Markets resulting in LTCG claimed exempt u/s 10(38). 8. It would be worthwhile to note that the sale proceeds were received by cheque duly credited in Bank accounts of the assessee s respectively. 9. Sunrise Asian Ltd. was listed and traded on Bombay Stock exchange. 10. The following documents were submitted before the Assessing Officer : a) Copy of share certificate dated 25.11.2011 in the name of Santoshima Tradelinks Ltd. holding 7500 shares of Conart Traders Ltd. (Later on amalgamated with Sunrise Asian Ltd.) duly endorsed in the favour of Assessee. b) Copy of relevant page of bank statement depicting payment made to Santoshima Lease Finance and Investment (India) Ltd., name changed to Santoshima Tradelinks Ltd. w.e.f. 16.09.2011, for purchasing 7500 shares of Conart Trader s Ltd. c) Copy of notice convening the meeting of shareholders of Sunrise Asian Limited d) Copy of order of Bombay High Court approving the scheme of amalgamation of Santoshima Tradelinks Ltd. and Conart Traders Ltd. with Sunrise Asian Ltd. e) Copy of public notice published in Free Press Journal on 11.10.2012 informing convening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten. f) The broker account referred by the AO is that of USS Broking Pvt. Ltd. from whom the transaction of the shares of Conart Traders Ltd. has not taken place. (in case of Vijaya Nyati) The assessee was having demat account with two more depositories viz. Saraswat Bank and Swastika Investmart Ltd. from whom shares were purchased and sold respectively. g) The credit in the demat account on 12.02.2013 is simply because of the sreason that the assessee was holding shares in physical form and if the shares in question were sent for dematerialization on a later date it is immaterial as the period of holding shall be counted from the date of purchase and hence the theory of short term capital gain in the alternate is again baseless. h) The allegation that Sunrise Asian Ltd. was a paper company is a figment of imagination. The company was trading in textiles, diamonds and shares. The Revenue from operations as on 31.03.2013 and 31.03.2014 stood at ₹ 73,83,56,861 and ₹ 113,45,80,505 respectively which are healthy figures to prove that the company had business. The Profit after Tax of Sunrise Asian Ltd as on 31.03.2013 and 31.03.2014 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese are general observations and the appellant was never confronted with these facts. The Ld. CIT(A) has further observed that the appellant has not produced evidences in support of this claim are not based on facts as the appellant has produced all possible documentary evidences to discharge the primary onus cast on him as stated above. Further observations made by the Ld. CIT(A) are addressed as under :- i) The observation that the assessee has not made any investment in any other shares which is not correct in one of the cases (Smt. Vijaya Nyati) as the assessee has not dealt merely in Sunrise Asian Ltd. ii) Shares were not purchased with the collusion of broker as the purchase was an off-market transaction and not at a miniscule price but @ ₹ 20/- per share. iii) Since it was an off-market transaction the question of recording of purchase on the stock exchange or market does not arise. iv) There is no illegality in making an off-market purchase. v) The payment for purchase was made by cheque and not cash as stated and the same can be verified from the bank statement of Dena Bank which were submitted before the AO and the CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 (copy at pages 200 to 216) where in a reference has been made to the retraction of statement made by Shri Vipul Vidur Bhatt on affidavit dated 02.09.2016 where he has denied to have given any accommodation entries. (Refer page 208) The said statement has not been rejected and thus stands accepted by the revenue authorities. When the retraction statement is made on affidavit on oath then it was required to be countered by revenue and rejected by the appellate authorities but it has not been done. The statement made earlier on 04.02.2016 by Shri Bhatt thus loses its sanctity and has no value. Moreover, Shri Bhatt never named the appellant as a beneficiary in the statement. Moreover, any statement recorded behind the back of the assessee and without giving an opportunity to cross examine has no value. The Hon ble Supreme Court in Pullangode Rubber Produce Company Ltd. Vs. State of Kerala Another, (1973) 91 ITR 0018 (SC) has held that the admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made admission to show that it is incorrect and the assessee should be given proper opportunity to sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished by other judgments of appellate authorities which have been submitted separately as Case Laws Paper Book. To summarize once again: 1. The purchase was an off-market transaction where payment was made by account payee cheque and duly reflected in the bank account. 2. The share of Sunrise Asian Ltd. was duly traded on BSE. 3. The sale of shares was made online on BSE through a registered and renowned broker of Indore i.e. Swastika Investmart Ltd. Even STT was paid. 4. The sale proceeds were received in the bank account of the assessee. 5. The sale and purchase of transaction had been made through account payee cheque which was supported by a copy of bank account. 6. The movement of shares is evidenced by a demat statement. 7. No critical faults were found by the AO in the documents submitted before him. 8. No independent enquiries or investigation was done either by the Assessing Officer or the Ld. CIT(A). 9. The entire addition was made by the Assessing Officer only on the basis of presumption and presuppositions, instead of considering the documents/ information and explanation provided by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sian Ltd. Relevant extract of the order downloaded from BSE site is enclosed at pages 10 to 11. 18. The company was making profits in the year under consideration and showed good prospects. Report of Research department of CRISIL fortifies this view. If the company was showing no profits how could it inform the BSE about its proposed payment of interim dividend. Copy of letter dated 24.10.2016 by Sunrise Asian Ltd. to BSE is enclosed at page 12. 19. The most important point in this case is that neither the Assessing Officer nor the Ld. CIT(A) were able to unearth any money trail which proved that the appellants own money has come back to shim in the garb of Long term capital gain. The entire addition thus falls flat as it is purely based on suspicion and surmises and suspicion howsoever strong it may be cannot replace evidence. 20. The entire case is built on conjectures and surmises without any evidence against the assessee appellants. Merely the modus operandi, general observations, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Reliance is laced on following decisions: 1. KARUNA GARG ORS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en examined relating to Long Term Capital Gain from sale of shares of M/s Sunrise Asian Limited and Hon'ble Tribunal has held that since the assessee has discharged the necessary onus casted on him in terms of claim of exemption of Long Term Capital Gain u/s 10(38) of the Act by establishing the genuineness of transaction to prove that SAL is not a penny stock company and also satisfying the requisite conditions in order to claim the exemption u/s 10(38) of the Act for LTCG arising from sale of equity shares of M/s SAL. 11. Per contra Ld. Departmental Representative has submitted that the Ld. 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. and which has been upheld by the Id CIT(A) by passing a detailed order. 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 of providing entries of tax exempt bogus Long Term Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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). 12. The Ld A/R in his rejoinder 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 allotment of shares, holding in Demat account, payment of purchase consideration as well as receipt of the sale consideration through banking channel, thus the said decision cannot be applied in the present case. Reliance placed on the judgment of Hon'ble High Court of Delhi in the case of PCIT V/s Smt. Krishna Devi others wherein Hon'ble High court decided in favour of the assessee after considering the judgment in the case of Suman Poddar V/s ITO (supra) and Sumati Dayal V/s CIT (1995) AIR 2019. 13. We have heard rival contentions and perused the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 18.11.2020 has adjudicated very same issue. Even this Tribunal recently in the case of Mr. Ayush Jain and others ITA No.616/Ind/2019 order dated 30.4.2021 dealt with the very same issue pertaining to genuineness of claim of Long Term Capital Gain u/s 10(38) of the Act for sale of equity shares of M/s Sunrise Asian Limited and both the above stated judgments of Co-ordinate benches of Mumbai and Jaipur are considered and reliance has also placed on the judgment of Hon'ble High Court of Delhi in the case of PCIT V/s Smt. Krishna Devi others (supra) observing as follows:- 15. We have heard rival submissions and perused the records placed before us and carefully gone through the judgments and decisions referred and relied by both the parties. The issue of genuineness of claim of exemption of Long Term Capital Gain (In short LTGC ) u/s 10(38) of the Act from sale of equity shares of a listed company namely M/s Sunrise Asian Limited (In short SAL ) carried out through a recognized stock exchange and shares been transferred through Demat account is in dispute before us. Revenue authorities have alleged that the company namely M/s Sunrise Asian Ltd is a penny stock c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited with Sunrise Asian Limited. 19 October 2012 Placed request for getting the shares in dematerialized form. 22 October 2012 Letter issued to Mr Nilesh P Chouhan, Director of the company seeking information in respect of amalgamation and raising concerns about the proposal. November 2012 Received letter from the company explaining the rationale for merger and satisfying the queries raised. March 2013 The Hon'ble Bombay High Court passed the order for merger of the company with M/s Sunrise Asian Limited June 2013 New shares in Sunrise Asian Limited received in lieu of holding of Santoshima Tradelinks Limited in demat account. July 2013 Received Balance sheet of the Sunrise Asian for the FY 2012-13 Nov 13 onwards Sale of shares through stock Exchange Following documents were furnished: . Copies of contract notes in respect of sale of shares. . Copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be a sham and bogus transaction liable to be taxed u/s 68 of the Act as unexplained cash credit and estimated brokerage expense for arranging LTCG. After thoroughly discussing the facts and issues, Co-ordinate Bench, Mumbai has decided in favour of the assessee and held that the claim of Long Term Capital Gain u/s 10(38) of the Act from the sale of equity shares of M/s Sunrise Asian Limited is genuine and SAL is not a penny stock company and further holding that the alleged transaction is neither bogus nor sham. Further the Tribunal has deleted the addition for estimated brokerage expenses for arranging accommodation entry. Relevant finding of Hon'ble Mumbai Tribunal in the case of Dipesh Ramesh Vardhan Vs DCIT recently delivered on 11.08.2020 is reproduced below:- 6. We have carefully heard the rival submissions and perused relevant material on record. So far as the factual matrix is concerned, there is no substantial dispute regarding the same. The perusal of record would reveal that the assessee purchased certain shares of an entity namely M/s STL as early as September, 2011. The shares were converted into demat form in assessee s account during the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuineness of the stated transactions and the onus had shifted on revenue to rebut the same. 7. As against the assessee s position, the primary material to make additions in the hands of assessee is the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities including M/s SAL. However, there is nothing on record to establish vital link between the assessee group and Shri Vipul Bhat or any of his group entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wealth of that magnitude has been found during the course of search operations on assessee which would corroborate such presumption and prove that the transactions were sham transactions, in any manner. 9. The fact that the assessee could not produce the concerned person of M/s SAL was rightly controverted by submitting that the aforesaid entity was not under the control of the assessee and the assessee was under no obligation to do so. The existence of M/s SAL is beyond doubt since it was a listed corporate entity and secondly, it was subject matter of scheme of amalgamation u/s 391 to 394. The scheme of amalgamation was duly been approved by Hon ble Bombay High Court. Therefore, the existence of the said entity could not be doubted, in any manner. 10. The above conclusion is further fortified by the fact that in share sale transactions through online mode, the identity of the buyer of the shares would not be known to the assessee. Therefore, the adverse conclusion drawn by Ld. AO merely on the basis of the fact that the buyer of the shares were group entities of Shri Vipul Bhat, could not be sustained. The fact that there were independent buyers also would rebut the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Gains as well as estimated commission against the same, stands deleted. The grounds of appeal, to that extent, stand allowed. 19. Subsequently Co-ordinate Bench of Jaipur in the case of Ashok Agrawal V/s ACIT in ITA No.124/JP/2020 dated 18.11.2020 has followed the decision of Hon'ble Mumbai Tribunal in the case of Dipesh Ramesh Vardhan (supra) qwhile dealing with the same issue of Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited claimed to be exempt u/s 10(38) of the Act and decided in favour of the assessee and against the revenue observing as follows:- 23. In the aforesaid decision, it has been held that it is SESI who monitors and regulates the stock exchanges stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the Id. AO has referred to SESI enquiry against M/s Sunrise Asian Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below. 24. We also find that while analyzing sale of shares of similar scrip of M/s Sunrise Asian Ltd and claim of exemption of long term capital gains u/s 10(38), the Mumbai Benches of the Tribunal in case of Anraj Hiralal Shah (HUF) vs ITO (supra) has upheld the claim of the assessee's claim of exemption under section 10(38) of the Act and the relevant findings of the Coordinate Bench contained at Para 8 read as under:- 8. The assessee has earned speculation profit in the immediately preceding year through M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and It has been accepted. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) delivered on 22.11.2019, we find that Hon ble High Court of Delhi in its recent judgment dated 15.1.2021 in the case of PCIT V/s Krishna Devi Others ITA No.125/2020 dealing with the similar issue of claim of exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of equity shares has duly considered the judgment of Hon ble Supreme Court in the case of Suman Poddar V/s ITO (supra) and has confirmed the order of the Tribunal stating it to be the last fact finding authority who on the basis of evidence brought on record has rightly came to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. Relevant extract of the judgment of Hon ble Delhi High Court in the case of PCIT V/s Krishna Devi Others is reproduced below:- 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels. The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal are squarely covered by the decision of Co-ordinate Bench of Mumbai and Jaipur in the case of Dinesh Ramesh Vardhan V/s DCIT and Ashok Agrawal V/s ACIT respectively and further find support from the judgment of Hon'ble Delhi High Court in the case of PCIT V/s Krishna Devi Others and thus hold that the alleged transaction of earning Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited is neither bogus nor sham and thus eligible for exemption u/s 10(38) of the Act and no addition was thus called for u/s 68 of the Act. We accordingly allow Ground No.1 raised by the assessee namely Shri Ayush Jain and delete the addition of ₹ 1,40,95,302/- and also allow Ground No.2 thus deleting addition for estimated brokerage expenses of ₹ 4,22,859/-. The other two grounds are general in nature which needs no adjudication. 22. In the result appeal of the assessee, Shri Ayush Jain in ITA No.616/Ind/2019 is allowed. 16. We therefore in the light of the above discussion and in the entirety of facts and circumstances of the case and respectfully following the judgment of the Co-ordinate Benches in cases referred (supra) consistently holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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