TMI Blog2022 (1) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... icious without bringing on record any concrete evidences to the contrary. As the long term capital gain which was earned through recognized stock exchange and is evidenced by the documentary evidences and mere fact that the scrip price has risen many times can not be sole factor for treating the same as bogus. We also note that the co-ordinate Bench of the Tribunal in the above two cases namely Smt. Geeta Khare vs. ACIT [ 2019 (5) TMI 1846 - ITAT MUMBAI] and Smt. Bhavna B. Kothari vs. ITO [ 2020 (9) TMI 491 - ITAT MUMBAI] the scrip involved was M/s. S.R.K. Industries Ltd. and the co-ordinate Bench of the Tribunal has held the long term capital gain to be genuine and not bogus. - Decided in favour of assessee. - ITA No.1775/M/2019 - - - Dated:- 22-11-2021 - Shri Rajesh Kumar, Accountant Member And Shri Amarjit Singh, Judicial Member For the Assessee : Shri B.V. Jhaveri, A.R. For the Revenue : Shri Raghuveer Madana, D.R. ORDER PER RAJESH KUMAR, ACCOUNTANT MEMBER: The present appeal has been preferred by the assessee against the order dated 28.02.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The assessee filed an appeal before Ld. CIT(A) which was dismissed by the appellate authority by observing and holding as under: 4.1.6. In view of the elaborated discussion/analysis and conclusion of the A.O. in the Assessment order, the analysis of appellant's argument, principle laid down by the decision/judgements relied upon it is clear that the appellant has misutilized the provisions of section 10(38) of the Act. It is also clear that the appellant and individual whose main source of income is not dealing in shares had purchased shares of M/s. TCL offline from a company which was also managed by the entry operator. The company M/s. TCL was subsequently merged with M/s. SRK Industries Ltd and thereafter M/s. SRK Industries Ltd has split the aforesaid shares into ₹ 5/- per share and appellant was allotted 2,88,600 equity shares in lieu of 1,44,300 shares. The A.O. has clearly brought out in detail that financial results of the company during the relevant period did not show any prospective growth. None of the parameters which are essential for increase of price of shares was present inspite of this if the share price is increased 23 times then it is defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the, income tax Officer is entitled to treat it as taxable income see A.Govindarajulu Mudaliar v. Commissioner of Income-tax 34 ITR 807 SC. In view of the above I, have no reasons to interfere with the conclusion of the A.O. Thus the addition of ₹ 5,46,21,248/- as cash credit u/s.68 of the Act is upheld and ground of appeal on this issue is Dismissed. 5. The Ld. A.R. vehemently argued before the Bench that the capital gain arising from sale of shares of M/s. S.R.K. Industries Ltd. was in fact genuine and has resulted from sale of shares made on recognized stock exchange of Bombay through registered broker M/s. Vishesh Capital Pvt. Ltd. between 16.12.2013 to 10.01.2014. The Ld. A.R. submitted that the sale of shares was duly supported with contract notes issued by M/s. Vishesh Capital Ltd. and sale proceeds received were duly credited in the bank account of the assessee after reducing security transactions tax and brokerage. The Ld. A.R. submitted that assessee has file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital. The Ld. D.R. submitted that the mere fact that the assessee filed all the evidences qua purchase and sale of shares comprising contract notes, payment through banking channels, D-mat account etc. and sale on recognized exchange would not ipso facto prove the genuineness of the transactions when the penny stocks are held to be of bogus nature and used to give accommodation entries. The Ld. D.R. submitted that the racket of bogus long term capital gain runs into thousands of crores as brought out by the investigation team and therefore the sale consideration of such shares was rightly added under section 68 of the Act. The Ld. D.R. finally prayed before the Bench that the order of Ld. CIT(A) may kindly be confirmed by dismissing the appeal of the assessee. 7. After hearing both the parties and perusing the material on record, we find that the assessee has sold 2,88,600 shares of M/s. S.R.K. Industries Ltd. at Bombay Stock Exchange through broker M/s. Vishesh Capital Pvt. Ltd. dated 16.12.2013 and 10.01.2014. The facts qua the purchase of these shares were already discussed hereinabove. We note that the assessee has filed before the AO the proofs of purchase and sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue before us. The revenue had not brought on record any adverse order passed by SEBI linking the assessee or her broker with the alleged price rigging and manipulation. Hence there is absolutely no iota of evidence linking the assessee or the registered brokers to even remotely allege that they were involved in artificial rigging of price of scrips which were dealt by the assessee herein. The statements of various operators were recorded by the ld AO and the same are reproduced in the assessment order. But nowhere in those statements, the name of the assessee or the broker through whom the assessee dealt with regard to sale of shares were even remotely mentioned by those operators. We find from perusal of the assessment order, there is no mention or reference as to whether these statements were even provided to the assessee for his verification and seek for cross examination, if any. Hence it could be safely concluded that these statements were taken behind the back of the assessee and were never put to the assessee for his rebuttal. Hence no evidentiary value could be attached to those statements. We find that the statement was recorded on oath u/s 131 of the Act from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen that the assessee had exited from the market by selling the shares once there was heavy selling of the shares of SRK Industries Ltd on the fear element being setting in for further reduction of prices. We find that these after Jan 2014, these shares were heavily traded in the open market. In any case, it is not for the revenue to decide as to at what time the assessee should exit from his holding of shares in the open market. It is for the assessee to decide. The revenue cannot step into the shoes of the assessee and decide the purchase and sale transactions of shares and the timing together with the pricing thereon. Reliance in this regard is placed has been rightly placed by the ld AR on the decision of Hon ble Supreme Court in the case of CIT vs Dhanrajgiri Raja Narasingirji reported in 91 ITR 544 (SC). 7.2. We find that the ld AR pleaded that in an online platform, there would be no nexus between the purchasers and the seller and the delivery of shares and payments would be made through their respective stock brokers. Hence the ld AO ought to have summoned the assessee s brokers to examine the authenticity of the sale of shares of SRK Industries Ltd and the amount r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded to notice u/s 133(6) of the Act, no adverse inference could be drawn on the assessee for the default committed by those alleged purchasers. The ld AO could have very well resorted to issuance of summons u/s 131 of the Act to those alleged purchasers and / or take necessary action on them in the manner known to law for non-compliance from their side. We hold that the assessee need not discharge her onus of bringing on record the alleged purchasers especially when the shares were sold in the open market in an online platform. Accordingly, the assessee need not prove the identity, creditworthiness of those alleged purchasers of shares and the genuineness of transactions within the meaning of section 68 of the Act. The assessee has received the sale proceeds of shares from her broker M/s Sharekhan Limited. The assessee had shown the credit in the name of M/s Sharekhan Limited in her books. Hence the assessee had duly discharged her onus by furnishing the entire sale details made through the registered stock broker M/s Sharekhan Limited. We find that the ld AO had not even bothered to make any enquiry with M/s Sharekhan Limited to understand these facts. Hence no fault could be att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted companies during the year like Indus Ind Bank, Crompton Greaves, Larsen and Toubro etc. We find that the ld AO in para 13.4 of his order had observed that on examination of Shri Shivajirao Jondhale on oath u/s 131 of the Act, it was noticed that he had also invested in the shares of SRK Industries Ltd only based on an advice of his friend. Based on this, the ld AO had concluded that the whole basis of purchase of this share is a preknowledge of rigging of price and subsequently taking accommodation entry for Long term capital gains. We find from the demat statements for the period 1.4.2012 to 31.3.2013 and 1.4.2013 to 31.3.2014, the assessee had dealt in various reputed scrips and had duly dematted the same and all these transactions are duly reflected in the demat statements issued by the depository participant. 7.6. We find that the ld DR made general submissions with regard to the investigations carried out by Kolkata Income Tax Department after identifying 84 scrips to be penny stocks and the modus operandi adopted by those scrips with the connivance of various entry operators, brokers and stock exchange. We find that the ld DR was not specifically able to controvert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce Gross Total Income Total Income Exempt LTCG 2012-13 0 0 8,63,168 8,63,168 7,43,168 NIL 2013-14 2,40,000 0 3,98,213 6,38,213 5,36,940 NIL 2014-15 0 4,80,227 6,12,677 11,76,904 10,61,900 5,50,158 4. Main issues involved: The main reason for selection of scrutiny of this case was to examine the earning of suspicious capital gain from transaction in penny stock (input given by Investigation wing). In course of scrutiny, it is seen that assessee had shown income from Long Term Capital Gains from sale of shares of M/s SRK Industries Ltd. to the tune of ₹ 5,50,158/- on sales of shares for ₹ 5,57,658/-. This Long Term Capital gain was claimed exempt from Income tax. The assessee had declared following calculati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with identical issue of sale of shares decided the issue in favour of the assessee by relying upon a plethora of judgments of various Courts. It held as follows:- 12. The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to Modus Operandi of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore 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. 15. In our view 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 Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. 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 Hon'ble Supreme Court in the case of Umacharan Shah Bros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon‟ble Court held: Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Incometax Officer and the fact that the appellant indulged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in State of M.P. v. Chintaman Sadashiva Vaishampayan AIR 1961 SC 1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC 708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors.AIR 2009 SC 2448; Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: 4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLB CABLES CONDUCTORS [ITA No. 78 of 2017] dated 19.06.2018. The High Court held vide Para 4.1: 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. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. d) The BENCH D OF KOLKATA ITAT in the case of GAUTAM PINCHA [ITA No.569/Kol/2017] order dated 15.11.2017 held as under vide Page 12 Para 8.1: In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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. 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. It further held as follows: We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A). h) The Hon‟ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exempt from income tax. The scrips in question were the subject matter of adjudication before this Tribunal. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the case, decided the issue in favour of the assessee. We list some of these decisions:- Shri Gautam Kumar Pincha vs. ITO, ITA No. 569/Kol/2017, dt. 15/11/2017 ITO vs. Shri Shaleen khemani, ITA No. 1945/Kol/2014, dt. 18/10/2017 Mahendra Kumar Baid vs. ACIT, Circle-35; ITA No. 1237/Kol/2017; order dt. 18/08/2017 Kiran Kothari HUF vs. ITO, ITA No. 443/kol/2017, order dt. 15/11/2017 The Hon‟ble Jurisdictional High Court had in the following cases, upheld the claim of the assessee:- CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC)dt. 08/05/2017 CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.04.2009 6.2. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6. Similarly, the sale of the said shaers for ₹ 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt Ltd and M/s Scorpio Management Consultants Pvt Ltd cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assesse nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s Richmand Securities Pvt Ltd regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s Richmand Securities Pvt Ltd held that the sale transaction was genuine. 7. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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