TMI Blog2020 (4) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... long term capital gain - these penny stock companies were not having any financial strength or genuine business and the increase in the prices of the share was only through manipulation and connivance with the brokers. The assessee s name was found to be in the list of beneficiary and accordingly the AO inquired upon these transactions by the assessee during the year. Assessee has duly disclosed these long term capital gains in his return of income filed for the year. We note that the AO has not supplied any material to the assessee before finalizing the assessment and has merely relied upon the investigation report received by the assessee that assessee is a beneficiary of this racket. The AO merely reproduced the report of the investigation wing in the assessment order and discussed the financial of Premier Capital Services Ltd. However, it was never confronted to the assessee or any cross examination was allowed to find out the truth behind it. We note that assessee has purchased the shares and subsequently sold on the stock exchange through online trading portal and where it is very difficult to note about the subsequent buyer Assessee has filed all the necessary evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest under section 234A, 234B, 234C and 234D of the Income Tax Act, 1961. 5. The Ld.CIT(A) erred in confirming the initiation of the penalty proceeding under section 274 r.w.s. 271(1)(c) of the Income Tax Act, 1961. 6. The Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing. 3. The assessee has raised two effective issues in the various grounds of appeal. The first issue which of legal nature is that the assessee was not provided the cross examination of those parties who gave statements against the assessee and also that materials used against the assessee in framing the assessment order were not provided to the assessee. The second effective issue raised by the assessee is on merit and is against the order of CIT(A) confirming the addition of ₹ 3,43,62,880/- has made by the Assessing Officer as unexplained cash credit under section 68 of the Act by rejecting the long term capital gain of ₹ 3,32,77,358/- and cost of acquisition of ₹ 9,30,375/-. 4. The facts in brief are that the assessee filed his return of income on 31.10.2015 declaring a income of ₹ 64,34,450 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conclusion that the said Long Term Capital Gain (LTCG) is a bogus and was just accommodation entry which has been transacted by the assessee in connivance with operators operating on the recognized stock exchange to obtain bogus LTCG.. The Assessing Officer noted that the assessee bought 20000 shares on 4.9.2012 at a price of ₹ 15,00,000/- upon preferential allotment of ₹ 75/- of face value of ₹ 10/- per share and duly transferred in the Dmat account of the assesse. On 21.3.2014 these were split into 10 shares for each exiting share. Thus each shre was spli into 10 shares of the face value of ₹ 1 each and total holding of the assessee after split became 200000 shares. The assessee sold 124050 shares sold the shares after a period of 12 months between June 2014 to August 2014 for a consideration of ₹ 3,43,62,880/- thereby making LTCG of ₹ 3,32,77,358/-. When the assessee sold his shares, the shares rate on the exchange was ₹ 277/-. According to the Assessing Office neither the turnover of the company increased substantially nor was there any profit registered by the company but the share price shoots up by 3576%. The Assessing Officer als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The demat statement on preferential allotment and on spilt of shares is at pp 11 and pp 20 of the paper book filed by appellant and placed at annexure. The details at pp 20 reveal 2,00,000 shares as on 21.03.2014 on split with FV of ₹ 1/- and total value of ₹ 2,20,00,000/-. This demat statement cannot be relied on as the value can only be ₹ 2,00,000/- and not ₹ 2,20,00,000/-. The appellant has not been able to explain to the satisfaction of the Ld. AO nor during appellate proceedings as to how he was allotted equity on a preferential basis - that is which of the promoters allotted the same or if it was part of the non-promoter's group , how he had access for purchase of the same. No application of the appellant for issue of preferential shares and approval of the Board has been furnished. 5.5.2 In view of the aforesaid facts, the purchase of the shares is held to be bogus/sham transaction. The appellant has not adduced any evidence in support of how he was allotted these shares on a preferential basis, that is which of the promoters allotted the same or it was part of the non-promoter's group, how he had access for purchase of the same. No app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 358 was made. The learned AR submitted that even the STT and Service Tax was paid on the sale of shares. The ldAR also referred to copies of the said contract notes at page No.51 to 89 of the paper book. The learned AR submitted that the Assessing Officer has primarily relied on the report of investigation wing and thus came to the conclusion that the assessee also alleged bogus transaction/ accommodation entries. The learned AR submitted that the assessee is a genuine purchaser and seller of shares and has purchased and sold shares at the prevailing market prices. The learned AR also submitted that the assessee has filed various documents before the Assessing Officer in order to substantiate the purchase and sale of shares comprising payments proof by account payee cheques, copies of contract notes, copy of Demat Account evidencing the purchase and sale of shares duly supported with contract notes, bank statements, evidencing the movement of funds through banking channel and proof of payment of STT etc. The learned AR submitted that the Assessing Officer has used the report of the investigation wing against the assessee without offering any opportunity to the assessee to controver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. CIT vs Bhagwati Prasad Agrwal ITA No.22/Kol/2019 Calcutta High Court 24. Mr.Shyam R Pawar Vs DCIT Central Circle 24 26 ITAT Mumbai(ITA NO.5585/M/11, 5620,5621 5622/M/11) 25. CIT (Jamshedpur) vs Arun Kumar Agarwal (HUF) Jharkhand HC 26. PCIT (Ludhiana) vs Sh. Hitesh Gandhi P H HC 27. ACIT central Circle-II, Jalandhar vs Hitesh Gandhi ITAT Amritsar [ ITA No.129(Asr)/2014] 28. Manish Kumar Baid and Mahndra Kumar Baid vs ACIT, Cir-35, ITA NO.1236, 1237/Kol/2017[ Kolkata-Tribunal] 29. Shri JIgnesh Desai vs Income Tax Officer 35(2), ITA NO1263/Kol/2017) [Kolkata-Tribunal] 30. Navneet Agarwal, Legal Heir of Late Kiran Agarwal vs ITO, Ward-35(3) ITA No.2281/Kol/2017 [Kolkata ITA No.443/Kol/2017) 31. Kiran Kothari HUF vs ITO Ward 35(3), Kolkata ITA No.443/Kol/2017 32. Shri Gautam Kumar Pincha vs ITO 34(4), Kolkata (ITA No.569/Kol/2017) 33. Ketulkumar D Jaishwal vs ITO s.K.Ward -4 Modasa(ITa No.546/Ahd/2015) [Ahemdabad-Tribunal] 34. CIT-I Jaipur Vs Smt Pooja Agarwal, Shri Jitendra 2017 Rajasthan High Court 35. Shri Pramod Jain, Shri Ankit Jain, Shri Sunil Jian, Naina Jain and Smt. Nisha Jain vs DCIT ITO Wd 3(2) Jaipur [Jaipur-Tribunal] 36. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation was allowed to the assessee. 10. The Ld. D.R., on the other hand, relied heavily on the order of AO and Ld. CIT(A) by submitting that the assessee is beneficiary of hawala purchase and sale racket which was being operated by some unscrupulous operators on the stock exchange in order to give undue and bogus benefits to the purchasers in order to convert the black money into white. The modus operandi was fully revealed during the course of search conducted on these hawala operators and how the prices of the shares were jacked up through manipulation and over a period of few months manifold increase was registered on the stock exchange. Undoubtedly, the assessee has purchased these shares at a very low price and sold after 12 months and thus made huge gain of ₹ 3,32,77,358/- on the purchase value of ₹ 9,30,375/-. Though the shares were held in D-Mat account but that does not make the bogus transaction sacrosanct. The Ld. D.R. submitted that the modus operandi how these operators operated in the stock exchange in order to give gains to the beneficiaries was fully brought to light by the search and investigation wing and fully discussed by the AO in para 6 of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the whole racket which was found that the various investors were indulged in these transactions in order to book the bogus long term capital gain/short term capital gain and routed their own money in order to convert the same into the long term capital gain. It was also found that these penny stock companies were not having any financial strength or genuine business and the increase in the prices of the share was only through manipulation and connivance with the brokers. The assessee s name was found to be in the list of beneficiary and accordingly the AO inquired upon these transactions by the assessee during the year. Needless to mention that assessee has duly disclosed these long term capital gains in his return of income filed for the year. We note that the AO has not supplied any material to the assessee before finalizing the assessment and has merely relied upon the investigation report received by the assessee that assessee is a beneficiary of this racket. The AO merely reproduced the report of the investigation wing in the assessment order and discussed the financial of Premier Capital Services Ltd. However, it was never confronted to the assessee or any cross examinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by a series of decisions referred and relied by the Ld. A.R. during the course of hearing as reproduced hereinabove a few of which are discussed below:- - In the case of CIT vs. Mukesh Ratilal Marolia (supra). In this case, the issue is whether the amount received by the assessee on sale of shares can be treated as unexplained investment under section 69 of the Act. The Tribunal deleted the addition by allowing the appeal of the assessee by holding that the purchase of shares were duly recorded in the books of accounts and the source of funds is also explained and the shares were in fact transferred in the name of the assessee and thus the purchases of the assessee can not be fault with. Similarly, the sale of shares was effected can not be disputed because the amount received by the assessee is not in dispute and it is not the case of the Revenue that shares are still lying with the assessee or amount received by the assessee on sale of shares is more than the declared value by the assessee. Under these circumstances, the Hon ble High Court has held that AO is not justified in holding that sale proceeds of ₹ 1,41,08,484/- represented unexplained investment under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O (supra) the similar issue has been decided under the similar set of facts by holding that the long term capital gain is genuine as the assessee has fully discharged its onus and AO has not done any further verification. In the case of Kamaladevi vs. Doshi vs. ITO the similar issue has been decided by the Tribunal in favour of the assessee by observing and holding as under: 14. We have given a thoughtful consideration to the facts of the case and are of the considered view that the assessee had placed on record substantial documentary evidence to substantiate the genuineness and veracity of the purchase and sale of 10,200 shares of M/s Talent Infoways Ltd., viz. copy of the Contract note, dated. 15.04.2004 evidencing the purchase of shares; Copy of the contract note, dated. 06.04.2004 as regards the speculation income, and the copy of the cash receipt for ₹ 168/-; Copy of her account in the books of account of M/s MSPL; Copy of the letter from M/s Talent Infoways Ltd., dated. 29.05.2004, therein confirming the transfer of shares; Copy of the contract notes for sale of shares in the months of September and October, 2005; Copy of the bank statement evidencing receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves to subscribe to the adverse inferences drawn by the lower authorities in respect of the share transactions of the assessee by referring to the stand alone statement of Sh. Mukesh Choksi, as the same as observed by us hereinabove, suffer from serious infirmities, and as such cannot be summarily accepted, nor are able to dislodge the genuineness of the purchase and sale of shares of the aforesaid 10,200 shares of M/s Talent Infoways Ltd., which we find had been duly substantiated by the assessee on the basis of material made available on record, which we find had not been dislodged by the lower authorities. We thus in the backdrop of the totality of the facts of the case are unable to find ourselves to be in agreement with the view arrived at by the lower authorities. We thus set aside the order of the CIT(A), and delete both of the additions of ₹ 9,36,164/- and ₹ 46,808/- made by the A.O, which thereafter were sustained by the CIT(A). The appeal of the assessee is allowed. 13. We have also gone through other decisions cited by the Ld. A.R. and observed that the case of the assessee is squarely covered by the various decisions. We therefore respectfully following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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