TMI Blog2021 (12) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... ry trades and there was no ban on the transactions for clients, therefore, the reliance placed by Revenue on this order of SEBI is misplaced. Moreover, we find that the ban was imposed by SEBI in 2010 (which was later on revoked also) and assessees had sold the shares in the year 2016 i.e. after a gap of about six years and in the meantime the Investigation Wing of the Income Tax Department had carried out investigation and vide report dated 27/04/2015 had identified 84 companies which were engaged in the business of providing accommodation entries and name of the scrip on which the assessee had earned capital gain does not find its name in that list and neither name of broker finds place in the list of broker investigated by the Investigation Wing of the Department. Denial of claim u/s 10(38) of the Act is not justified and the orders of learned CIT(A) are reversed and Assessing Officer is directed to allow the claim of the assessee u/s. 10(38) of the Act. As we have allowed relief to the assessee on account of denial of long term capital gain the addition on account of assumed commission which the Revenue has assumed to have been paid to the brokers is also deleted - Decided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interpretation of law, a disallowance u/s.69C can only be made where an expenditure has been actually incurred , there being neither any evidence nor any material on record, the addition made and upheld is both contrary to 6. Because the addition of ₹ 2,93,82,3497- u/s.68 by way of denial of exemption u/s. 10(38) in respect of LTCGs on sale of shares and the addition of ₹ 8,81,4707- u/s.69C on account of presumptive expenses, based on the report of the Investigation Wing, is general in nature, which report has neither been provided nor confronted to the assessee, reliance placed on the same by the AO and upheld by the CIT(A) makes the entire assessment order bad void abinito, over looking the principles of natural justice, additions to the total income made be deleted. 7. Because the CIT(A) has failed to appreciate the facts and the legal position, that the impugned assessment order has been passed u/s. 143(3) dt. 28.12.2018 after taking approval of JCIT, which is against the mandate of the section, in as much as there being reference made u/s.144A, is an order without jurisdiction, bad in law and be quashed, in as much as there is no requirement in law t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h ultimately was lifted also) and therefore, this allegation of the Revenue does not survive. Moreover, it was submitted that the Department had carried out a detailed investigation in the modus operandi adopted by various brokers/exit providers and had identified 84 companies and had also examined and investigated various stock brokers and the name of the broker does not find mention in that list who were banned from the stock market and neither the scrip sold by the assessees relates to any of the 84 identified companies. Learned counsel for the assessee submitted that as regards the reliance placed by authorities below on the case law of Udit Kalra, decided by Hon'ble Delhi High Court, the same has been considered by Hon'ble Delhi High Court in the case of Smt. Krishna Devi Others in ITA No. 125, 130 131 and further by I.T.A.T. in the case of Swati Luthra in I.T.A. No.6480/Del/2019 by order dated 28/06/2019 and in both these cases the Hon'ble Delhi High Court and I.T.A.T. has allowed relief to the assessees after considering the case law of Udit Kalra. As regards the reliance placed by the authorities in the case of Sanjay Bimalchand Jain vs Income Tax Officer, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Learned counsel for the assessees further submitted that these shares were delivered to the assessee in the DEMAT form in their respective Demat accounts and the assessees, after holding such shares for a period of about two years, sold the shares on screen based platform through SEBI registered stock broker and who had issued contract notes for sale of shares and had made the payments through banking channels and in this regard our attention was invited to respective paper book pages where such evidence of sale of shares and the credit of proceeds in the bank accounts of assessees were placed. Therefore, in view of the above facts and circumstances and in view of the judicial precedents, it was submitted that the appeals filed by the assessees may be allowed. 4. Learned CIT, D.R., on the other hand heavily placed reliance on the orders of the authorities below and argued that the brokers, through whom shares were sold, is a tainted broker who was suspended by SEBI and further some directors of other tainted companies had joined the company of sub-broker as Directors. Therefore, the authorities below has rightly rejected the claim of the assessee by holding the transactions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock brokers. The questioned scrip Shantanu Aqua was purchased through stock broker M/s Fair Intermediate Investment Private Limited vide Bill No. 00009 dated 22.04.2014 for a sum of ₹ 15,41,250/-from Bombay Stock Exchange settlement no. BC2014014. Copy of the contract note is enclosed. Payment of the shares purchased was made through account payee cheque. As we had think of, the price of Shantanu Aqua rose to a new height and we started selling the shares in small quantities from date 13th April, 2016 and sold all shares till 3rd August, 2016. In the start of shares were sold at a price of ₹ 210.00 and sold at a maximum of ₹ 269.00/-. All the shares were sold through registered stock brokers M/s Fair Intermediate Investment Private Limited and through Ashika Stock Brokers Pvt. Ltd. the transactions have been through the NSE/BSE and STT has duly been paid. 'Assessee has further placed reliance on ITA No. 457/Del/2018 in the case of Arun Kumar C/o Kapil Goel vs. ACIT, Circle-1 Noida. 5.1 Further the fact that assessee is a regular investor in share market is verifiable from the copy of Demat Account (placed in P.B. Page 62 to 65 58 to 62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and ramping up/ rigging of stock prices. The reason for the said Ban was that SEBI had unearthed a nexus between some mid-cap companies and stock market operators and brokers like Ashika Stockbroking Limited who rigged the share prices of these firms ahead of convertible bond issues and private placements to institutional investors. In the said order SEBI directed Ashika Stock Broking and others not to buy, sell or deal in the securities in their own/proprietary account in any manner till further directions and ordered Stock exchanges not to allow the concerned firms to take fresh positions. In the said order observations were made on the basis of evidence unearthed that the concerned companies had colluded with Operators and share brokers like Ashika Stockbroking Limited to pump up the price of shares prior to capital raising in the period from 2006-2009. The issue was once again considered by SEBI in July 2011 when order was passed by its whole time member Dr. K. M. Abraham on 19/07/2011 in which it was observed that During examination of the submissions of Ashika Stockbroking Limited and its clients (the fourteen entities) with the trade data, SEBI had noticed significant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ati Dayal, the Hon'ble Delhi High Court in the case of Smt. Krishna Devi and Others in I.T.A. No. 125, 130 131 vide order dated 15/01/2021 and after considering the above case laws has decided the issue in favour of the assessee by holding as under: 3. The present appeals under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the Act ] are directed against the common order dated 6th August, 2019 [hereinafter referred to as the Impugned Order ] passed in ITA No. 1069/DEL/2019 (for AY 2014-15), 2772/DEL/2019 (for AY 2015- 16) and other appeals for the same AYs, by the Income Tax Appellate Tribunal [hereinafter referred to as the ITAT ]. However, the Impugned Order records the factual position only in respect of ITA No. 1069/DEL/2019. 4. The Revenue urges identical questions of law in all the afore-noted appeals with the only difference being the figures relating to the additions made under Section 68 read with Section 115BBE of the Act. Accordingly, the same are being decided by way of this common order. 5. It is not in dispute, as noted in the Impugned Order, that the factual background in all the three appeals is quite similar. However, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or corroborated by the person during the assessment proceedings. xx xx xx 23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and affirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above clearly show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014. The exparte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y discharged the onus cast upon him by provisions of section 68 of the Act as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand. 6. Aggrieved by the aforesaid findings, the Revenue has filed the instant appeals contending that, notwithstanding the tax effect in the appeals falling below the threshold prescribed under Circular No. 23 dated 6 th September, 2019, the appeals are maintainable in view of the Office Memorandum dated 16th September, 2019 issued by the CBDT, which clarifies that the monetary limits prescribed in the aforementioned circular shall not apply where an assessee is claiming bogus LTCG through penny stocks, and the appeals be heard on merits. 7. Mr. Zoheb Hossain, learned senior standing counsel for the revenue (Appellant herein), contends that the learned ITAT has completely erred in law in deleting the addition, and thus the Impugned Order suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 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 Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the transaction is bogus, sham and nothing other than a racket of accommodation entries. 7. As regards the reliance placed by Learned CIT(A) on the case of Sanjay Bimalchand Jain decided by Hon'ble Bombay High Court, we find that the above said case law has been distinguished by Hon'ble I.T.A.T. Kolkata Bench in ITA No. 2243/Kol/2017 where the Hon'ble Tribunal vide para 31 held as under: 31. We note that the Id. D.R. 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 Id. 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 companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has only dismissed the appeal as the Hon'ble High Court found that the issue involved was only a question of fact. In this respect, para 28 of the Tribunal order in the case of Karuna Garg is relevant which is reproduced below: 28. The DR heavily relied upon the judgment of Hon'ble High Court of Delhi in the case of Udit Kalra Vs. ITO in ITA No.220/2019. We have carefully perused the order of the Hon'ble High Court and on going through the said judgment we find that no question of law was formulated by the Hon'ble High Court of Delhi in the said case and there is only dismissal of appeal in limine as the Hon'ble High Court found that the issue involved is a question of fact. 7.3 Similarly in the case of Swati Luthra (supra), the Hon'ble Tribunal while dealing with the case law of Udit Kalra vide para 14 has held as under: 14. That the ld DR during the course of hearing placed heavy reliance on judgment of Hon'ble High Court of Delhi in the case of Udit Kalra vs ITO in ITA No. 220/2019. Relevant extracts of said judgment are extracted as below: The assessee is aggrieved by the concurrent findings of the tax authorities - including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the scrips of the company were delisted on stock exchange, whereas, in the instant case, the interim order of SEBI in the cases of M/s Esteem Bio and M/s Turbotech have been cooled down by subsequent order of SEBI placed by assessees in its paper book. Thus, the case of Udit Kalra vs ITO relied by ld. DR is clearly distinguishable on facts and is not applicable to the facts of assessee. Thus, we hold that the case of assessee is factually and materially distinguishable from the facts of the case of Udit Kalra vs ITO so relied by ld DR. 8. As regards the reliance placed on the order of I.T.A.T. in ITA No. 6717/Del/2017, we find that in that case purchase of shares were made in cash and the shares were originally allotted in physical form whereas in the present case the payments has been made through banking channels and shares has been allotted electronically. As regards the case law of Madras High Court, we find that in that case the assessee had not filed any evidence of transactions and had not even appeared but here in the present cases the assessees has filed all evidences and against which there is no adverse findings by the authorities. Therefore, all above case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment. The ban which was imposed on this broker in 2010 was also lifted immediately and the assessees has sold shares only in 2016 i.e. after a period of six years and no adverse inference against the broker can be taken in the absence of any adverse findings by any authority. 11. In the case of Pr. CIT vs. Parasben Kasturchand Kochar , R/Tax Appeal No. 204 of 2020, the Revenue had filed appeal against the order of Tribunal where the Tribunal had allowed relief to the assessee, again in a case u/s. 10(38) of the Act, under similar facts and circumstances, the Hon'ble Gujarat High Court has dismissed the appeal filed by the Revenue by holding as under: 1. This appeal under Section 260A of the Income Tax Act, 1961 (for short 'the Act 1961 ) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench dated 20-2-2020 in the ITA NO.549/AHD/2018 for the A.Y. 2014-15. The Revenue has proposed the following question of law for the consideration of this Court:- Whether the Appellate Tribunal was right in law and on facts in deleting the addition of ₹ 9,70,468/- made on account of LTCG claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under Section 260- A of the Act, 1961. 5. In the result, this appeal fails and is hereby dismissed. 12. We further find that the order of Hon'ble Gujarat High Court was challenged by the Department by filing S.L.P. and vide order dated 02.08.2021 in S.L.P. (C) No. 6782/2021 the Hon'ble Supreme Court has dismissed the petition by holding as under: We are not inclined to interefere with the impugned order. The Special Leave Petition is, accordingly. Dismissed. Pending application, if any, stands disposed of. 13. In view of above facts and circumstances and in view of judicial precedent, the denial of claim u/s 10(38) of the Act is not justified and the orders of learned CIT(A) are reversed and Assessing Officer is directed to allow the claim of the assessee u/s. 10(38) of the Act. As we have allowed relief to the assessees on account of denial of long term capital gain the addition on account of assumed commission which the Revenue has assumed to have been paid to the brokers is also deleted. In view of of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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