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TMI Blog2019 (5) TMI 1885X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal, but at the time of hearing we have carefully perused all the grounds raised by the Assessee. Most of the grounds raised by the Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the Assessee. With this background, we summarize and concise the grounds raised by theAssessee as follows: "All the grounds of appeal emanate from the action of the ld A.O. in treating the claim of Long Term Capital Gain of Rs. 3,39,46,071/- as bogus and ld CIT(A) confirmed the same. The ld AO had made a further addition of Rs. 1,69,730/-, as unexplained expenditure under section 69C of the Act for commission paid to procure the impugned Long Term Capital Gain and ld CIT(A) confirmed the same. The assessee has also challenged that in absence of incriminating material no addition can be made in the order u/s 153A of the Act in case of unabated assessment." 4. Brief facts qua the issue are that asearch and seizure operation u/s 132 of the Act, was carried out in the residential and business premises of 'Gagan Group' situated at various locations on 03.03.2015. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and made an addition of Rs. 3,39,46,071/-. The Assessing Officerhas also made addition u/s 69C @ 0.5% of commission of final entry provider of Rs. 1,69,730/-. 6.Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us. 7. Ld Counsel for the assessee submitted before us that the entire purchase of 70,000 equity shares and sale of 4,16,680 equity shares (31480 share at face value of Rs. 10/- each plus 385200 share at face value of Rs. 1/- each) of M/s Sulabh Engineers & Services Ltd, were made through Registered Stock Brokers company M/s. Consortium Securities Pvt. Ltd as per the Contract Notes issued by the Registered Brokers. The payment of the purchase price and the receipt of the sale proceeds were made through Banking channel and duly reflected in the Bank account of the assessee maintained with HDFC Bank, Durgapur Branch. All the relevant particulars and documents along with written submissions were filed by the assessee. Both the purchase and sale transactions were valid and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns to bring back unaccounted income into the regular books of account of the group through different jamakharchi companies. [Kindly see Q-6 & 7 of the statement dt.02.05.2015 at Page.61 to 64 of the Paper-book] On 05.06.2015, another statement of Shri Deepak Kumar Agarwal was recorded u/s.131 of the Income Tax Act, 1961 in the office of Dy. Director of Income Tax (Inv), Unit-2(2), Kolkata at 5th Floor, Room No.5/3, Aayakar Bhawan (Annexe), P-13, Chowringhee Square, Kolkata-700069, wherein he confirmed that the shares of Nikki Global Finance Ltd and Sulabh Engineers & Services Ltd were purchased through Shri Biplab Chowdhury, the Entry Operator and the branch head of M/ s. Consortium Securities Private Limited for the purpose of introducing the unaccounted fund generated due to out of books trading into the individual files in the form of LTCG to avail the tax exemption benefit. [Kindly see Q-4 to Q-20 of the statement dt.05.06.2015, incorporated in the assessment order at Pp-23-25] Statement of Shri Biplab Chowdhury was recorded u/s.131 of the Income Tax Act, 1961 in the office of Dy. Director of Income Tax (Inv), Unit-2(2), Kolkata at 5th Floor, Room No.5/3, Aayakar Bhawan (An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso stated that the price of scrip was determined by the market forces and there is no any human intervention. By submitting this plethora documents and statements, the ld. Counsel claimed that the long term capital gain generated by the assessee is genuine. We note that in the original Return of Income and the computation of total income the assessee had claimed Long Term Capital Gain ( LTCG) of Rs. 3,39,46,071/- earned on sale of shares as exempt from tax u/s 10(38) of the Income Tax Act. The assessee`s return was processed u/s 143(1) of the Act on dated 26.03.2015 accepting the Returned income. Later on, a search and seizure operation u/s 132 of the Income Tax Act was conducted on 03.03.2015 at various residential and business premises of 'Gagan Group'. The assessee belongs to this 'Gagan Group'. Consequent upon the search, notice u/s 153A was issued on 22.01.2016 calling for the Return of Income for the A. Y. 2013-14. In response to that notice, the assesseefiled Return of Income on 29.01.2016 declaring same total income of Rs. 18,29,180/- as was declared in the original Return. 10. We note that it is not disputed that in the assessee`s case under consideration, a search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:" We find that the Co-ordinate Bench of Delhi Tribunal in the case of Dy. CIT v. Aggarwal Entertainment (P.) Ltd reported in [2016] 72 taxmann.com 340 (Delhi - Trib.) had addressed this aspect. The relevant headnotes is reproduced below:- "Section 153A, read with section 143, of the Income-tax Act, 1961-Search and seizure - Assessment in case of (in case of section 143(1) assessment)- Assessment year 2004-05- Whether assessment in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 'assess or reassess' stated in section 153A(1)(b) has to be understood as below:- 'assess' means assessments to be framed in respect of abated assessment years irrespective of the fact whether there are any incriminating materials found during the course of search with respect to relevant assessment years ; 'reassess' means assessments to be framed in respect of concluded assessment years where incriminating materials were found during the course of search in respect of the relevant assessment year." We also find that the Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- '37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i) Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search, no additions could have been made to the income already assessed. 11. Now coming to the merits of the case, we note that the assessee had purchased 70,000 equity shares of M/s. Sulabh Engineers & Services Ltd. (hereinafter referred to as M/s. Sulabh) on 16.03.2011 in the F.Y. 2010-11 relevant to the A. Y.2011-12 at total cost of Rs.l4,00,000/- @ Rs. 20/- each. The purchase price was paid by the assessee through his bank account maintained with HDFC Bank, Durgapur Branch. The shares were received and recorded in the Demat account. Out of those 70,000 equity shares 38520 equity shares of M/s. Sulabh were subsequently split on 04.02.2013 in the ratio of 1: 10. Thus after split up the assessee had 385200 shares having face value of Rs. 1/- per share. The entire lot of those 4,16,680 equity shares (31480 share at face value of Rs.l0/- each plus 385200 shares at face value of Rs. 1/- each) of M/s Sulabh Engineers were sold by the assessee on different dates during the Financial Year 2012-13 relevant to the AY. 2013-14 for total consideration of Rs. 3,53,46,071/- at different rates varying from Rs. 17.68 to Rs. 59.69 per share through the Registered Stock Broking company M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities Pvt. Ltd. as per the Contract Notes issued by the Registered Brokers. The payment of the purchase price and the receipt of the sale proceeds were made through Banking channel duly reflected in the Bank account of the assessee maintained with HDFC Bank, Durgapur Branch. It is totally denied that in the above sale transactions of shares of M/s Sulabh Engineers by the assessee there was involvement of any entry operator or promoter or broker who had allegedly indulged in rigging and / or surging the price of shares of M/s Sulabh Engineers upwards / downwards during the year under assessment and that they had provided any accommodation entry to the assessee to make him unlawfully earn Long Term Capital Gain. We note that the company,'M/s. Sulabh Engineers & Services Ltd.' cannot branded as a penny stock company without any justified and valid reason. Besides having other activities, the assessee is not a regular investor of shares of companies as can be seen from the Audited accounts and the Balance Sheet. The share market does not always run strictly on the financial status and background of a company listed in a Stock Exchange. In a stock market various factors come into pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) The shares were purchased and sold based on the prevailing market condition. iii) The purchase and sale of shares are supported by contract notes. The payments were received through proper banking channel. iv) The purchase and sale transactions were subjected to Security Transaction Tax, Service Tax, Brokerage charges and Stamp duty. v) The share purchase and sale transactions are reflected in the d-mat account. vi) These facts are verifiable from the regular books of accounts. vii) The transactions can also be verified from the Stock Exchange. Therefore, we note that so far this allegation of the assessing officer is concerned, the assessee has proved beyond any doubt that the shares were purchased and sold through a Registered Broker. The shares were purchased and sold based on the prevailing market condition. The payments were received through proper banking channel. The purchase and sale transactions were subjected to Security Transaction Tax, Service Tax, Brokerage charges and Stamp duty. The share purchase and sale transactions are getting reflected in the d-mat account. These facts are verifiable from the regular books of accounts. The transactions can also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the Assessing Officer 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. We note that the Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction 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 hence under these circumstances nothing can be implicated against the assessee. 15. Now we deal with statement of Mr. Deepak Kumar Agarwal. We note that Mr.Deepak Kumar Agarwal has retracted from his statement which was taken by the DDIT (Inv). Wing Kolkata on 05.06.2015, by filing the following affidavit. The important content of the said affidavit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion to deal in penny stock and this is a usual practice in the business to take risk for windfall gain. From the entire appreciation of the fact, as a investor I had acquired the shares, the purchase of which was duly declared in the books of accounts which stand accepted by the law. The shares are sold through stock brokers who were registered with the Stock Exchange. Shares were, sold at the prices quoted at the Stock Exchange at the relevant time. The payment of sale consideration also flown from the bank account as per the settled rule/principle or stock exchange and SEBI.Nothing was brought as sufficient evidences and material to prove that we/our entity were involved in bogus, false or fabricated long term capital gain." We note that statement recorded under section 132(4) of the Act can form basis for an assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search. We note that in assessee`s case under consideration, the search team did not find any incriminating material therefore, addition merely on the statement recorded under section 132(4) of the Act should not be made, for that we rely on the following judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld Counsel, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO - ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) (ix) Anil Nandkishore Goyal vs. ACIT - ITA Nos. 1256/PN/2012 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in BSE/CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs.Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum) 21. We note that the ld. D.R. for the Revenue had heavily relied upon the decision of the Hon'ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld AO's conclusions are merely based on the information received by him. The appeal filed by the revenue wasdismissed. (iii) CIT V. Andaman Timbers Industries Ltd [ITA No. 721of 2008] (Cal-HC) In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (iv) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal- HC) in ITA No. 22 of 2009 dated 29.4.2009] In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the ld AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon'ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the claim of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand, the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence." (vii).M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal- HC) In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon'ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y SEBI and concerned stock exchange and suffered STT,brokerage, service tax, and cess. There is no iota of evidence over thetransactions as it were reflected in demat account. AO did not doubt the genuineness of the documents submitted by assessee. The ld AO failed to bring on record any evidence to suggestthat the sale of shares by the Assessee were not genuine. The assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. In these circumstances, the long term capital gain (LTCG) earned by the assessee should not be treated as bogus, as held by the Coordinate Benches of ITAT Kolkata, in the following cases: (i). Mr. Sanjiv Shroff, I.T.A. No. 1197/Kol/2018, Assessment Year: 2014-15, order dated, 02.01.2019 "28. We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (iv) ACIT vs. J. C. Agarwal HUF - ITYA No. 32/Agr/2007 (Agra ITAT) 30. Moreover, it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently 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. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus nor the AO had issued any notice to the brokers for confirmation. 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 exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alipine Investments in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the transaction statement of the period from 1-11-2011 to 31-12-2013. The assessee sold 50000 shares through her broker SKP which was a SEBI registered broker and earned a Long Term Capital Gain. Copy of Form No. 10DB issued by the broker, in support of charging of S.T.T. in respect of the transactions appearing in the ledger is placed on record. The holding period of the said scrip is more than one year (above 500 days) through in order to get the benefit of claim of Long Term Capital Gain the holding period is required to be 365 days The Assessing Officer as well as the Commissioner (Appeals) have rejected these evidences filed by the assessee by referring to 'Modus Operandi' of persons for earning long term capital gains which is exempt from income tax. All these observations of Investigation wing were general in nature and were applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee were not controverted by the revenue authorities. No evidence collected from third parties was confronted to the assessees. No opportunity of cross-examination of persons, on whose statements the revenue relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and she chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that she is not party to the scam etc., has to be controverted by the revenue with evidence. When a person claims that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law 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 assessee. The burden of proving a transaction 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 Assessing officer as well as the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hence under these circumstances nothing can be implicated against the assessee One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities no material was brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee is accepted and the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares is allowed and hence exempt from income tax. [Para 20]" 24. To conclude, we note that the assessee submitted before us the copy of balance sheet and profit and loss account (vide PB-53 to 71), copy of Affidavit dated 29.06.2015 in respect of retraction of statement made u/s 131 of the Act (vide PB- 72 to 77). The assessee submitted before us the copy of ledger accounts of broker M/s Consortium Securities Pvt. Ltd. along with copy of bills (PB-78 to 99). The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns.We note that Mr. Deepak Kumar Agarwal has retracted from his statement which was taken by the DDIT (Inv). Wing Kolkata on 05.06.2015, by filing an affidavit. We note that statement recorded under section 132(4) of the Act can form basis for an assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search. We note that in assessee`s case under consideration, the search team did not find any incriminating material therefore, addition merely on the statement recorded under section 132(4) of the Act should not be made. Therefore, based on the above facts and circumstances, we delete the addition of Rs. 3,39,46,071/- 25.The next issue is in relation to confirming the addition of Rs. 1,69,730/- as unexplained expenditure towards commission charges of sale of such shares by the operator. We have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently, the addition of Rs. 1,69,730/- is hereby directed to be deleted. We accordingly hold that the issue is allowed in favour of the assessee. 26. In the result, both the appeals of the assessee IT(SS) A Nos.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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