TMI Blog2022 (5) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO. In the present case we find that the entire addition is on the basis of some investigation report, the relevant portions of which is also not cited in the show cause or the assessment order, there is nothing against the assessee and no inquiry whatsoever has been done by the AO or the Ld CIT (A). In such circumstances the assessee having discharged her onus and nothing adverse being found against her, the addition cannot be sustained. We hold that both the lower authorities were not justified in not allowing the appellant s claim for exemption u/s 10(38) in respect of the profit derived by the appellant on sale of 120,000 shares of M/s GCM Securities Limited. We accordingly set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital gain as bogus and delete the consequential addition and the AO is directed to allow the exemption u/s 10(38) of the Act as claimed by the assessee. - Decided in favour of assessee. - I.T.A. No. 404/Kol/2021 - - - Dated:- 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2013 is found placed at page 5 to 11 of paper book. The shares are duly credited to the de-mat account of the assessee with Ashika Stock Broking Ltd and the copy of the demat statement is found placed at page 41 of the paper book. The said shares were subsequently split from face-value of Rs.10/- per share to Rs.1/- per share and hence the number of shares increased by 10 times and the shares available with the assessee after the split was 1,20,000 shares, this is apparent from the demat statement and the copy of the demat statement is found placed at page 45 of the paper book. We therefore note that the shares in question were acquired by the assessee by way of subscription made for equity shares, which were offered for subscription to the public at large by issue of prospectus. It was thus not a case where the shares were acquired through private purchase / off market where there could be an allegation for manipulation. The A/R of the assessee that the assessee is just an investor and as she received some suggestion for investment and she chose to investment based on these market tips/suggestions and had taken a calculated risk and had gained in the process and that she is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e.f. 01.10.2004] has been inserted in section 10 of the Act, which envisages that income arising out of transfer of long Term Capital Asset being an equity share in a company on which STT is paid is exempt from tax. Since the equity shares of the company [GCM Securities Ltd.] has been held by the assessee for more than a year and later sold on recognized stock exchange on which STT has been paid, the income becomes exempt u/s.10(38) of the Act. 6. We note that before the AO the copies of contract notes, demat statement, broker s ledger, bank statements etc. evidencing the sale of shares was duly submitted by the assessee. Thereafter the assessee was in receipt of a show cause notice dated 14/11/2017 (issued on 28/11/2017) the show cause notice is available on page 68 of the paper book requiring her to explain as to why the gain derived from sale of shares of M/s.GCM Securities Limited should not be treated as ingenuine. In reply thereof, the assessee furnished a detailed submission along with supporting documents. The AO, however did not accept the same and denied the benefit of exemption u/s 10(38) of the Act claimed in respect of the gain of Rs.77,78,476/- derived in the scrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im as per the references made in the Show-Cause Notice and given as Annexures to the Notice. 8. From plain reading of the assessment order and the show cause notice we find that none of the above was done. There is nothing contained in the show cause notice save and except some vague details of finding of investigation department, which in no way can be understood to be linked to the case of the assessee. Therefore, we find that the AO did not bring on record any tangible material on the basis of which he could hold that the appellant s transaction in M/s GCM Securities Ltd was bogus or sham. In the present case, no material has been brought on record to suggest that purchase and sale of shares were bogus. The Assessing Officer has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, the transaction of purchase and sale of shares were duly supported by contract note, demat account and payments were made through banking channel. We find that no enquiry let alone worthwhile enquiry was conducted by the AO before drawing adverse inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. We note that the aforesaid documents filed by the assessee before the lower authorities in order to substantiate sale of listed shares has not been found to be false, fabricated and fictitious. The appellant had furnished the copies of contract notes, Demat statement, Bank Statement, broker s ledger. The transactions in listed shares took place through a registered share broker, namely M/s. Ashika Stock Broking Pvt Ltd. The purchase of shares was acquired through public offer by way of direct subscription in Initial Public offering. The sale of shares took place on screen-based trading platform of Bombay Stock Exchange. The transaction was settled by making / receiving payment by account payee cheques through proper banking channel. The assessee had paid securities transaction tax (STT) on sale of shares. The transaction took place at the price prevailing on stock exchange on respective transaction dates and there is no adverse finding by the lower authorities in respect to the documents produced by the assessee to substantiate the sale of M/s GCM Securities Limited. In the light of the documents filed as afore-stated, the assessee has discharged the onus to prove the genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order the AO referred to the financials of M/s GCM Securities Limited the figures discussed pertained to FYs 2013-14, 2012-13 2011-12 which had no bearing with the assessee s transaction in shares during FY 2014-15 which were based on the price movements prevailing on the Bombay Stock Exchange during the relevant period. As is well known the price movements on the stock exchange are based on the financials of the company for the relevant period and are not influenced by the past financial results of the company. In view of these foregoing facts therefore we hold that no adverse inference could be drawn against the appellant. 13. Sec. 68 of the Act places the burden of proof on the tax payer, to explain the nature of source of any credit but not the source of the source. Hence when an assessee gives evidences of identity of the payer, source of the credit, evidences of the transactions to prove the genuineness, the assessee is said to have discharged his initial burden. In view of the above, we are of the view that the assessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions of the assessee is that the assessee is just an investor and as she received some suggestion for investment and she chose to investment based on these market tips/suggestions and had taken a calculated risk and had gained in the process and that she is not party to any alleged scam or illegal trades etc. has to be controverted by the revenue with evidence when a person claims that she has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are many beneficiaries of LTCG. Each case has to be assessed based on principles of legal import laid down by the Courts of law. 14. The Ld Counsel also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgment of Hon ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner alway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd /or found to be a pan of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such findings how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making Investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter would be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any findings specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, the AO at best could have considered the investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the ITO was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each. 17. The observations of the Hon'ble Apex Court are equally applicable to the case of the assessee. The AO and CIT(A) both, having failed to bring on record any material to prove that the transactions of the assessee were collusive transactions 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the cash has gone back in appellant s account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The A.O. has discussed modus operandi in some sham transactions which were detected in the search case of B.c. Purohit Group. The A.O. has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or wastaxable at a lower rate. As the appellant s case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purohit and Co. group. The AR made submission before the A.O. that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P.K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The A.O. has failed to counter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that:- 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 are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence 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 only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA NO.62/AHD/2018 in the matter of Mohan PolyfabPvt. Ltd. Vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. 3. Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.-- C. Vasantlal Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P H) 624 distinguished 19. Useful reference in this regard may also be made to the following judgments of the Hon ble jurisdictional Calcutta High Court involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation received by him. The appeal filed by the revenue was dismissed. (e) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 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 AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (f) 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 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 chain 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 all payments were received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 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. (i) In the case of CIT vs. Dhawan Investment and Trading Company Ltd. (1999) 238 ITR 486(Cal.) it was held as follows: 7. In appeal the Commissioner of Income-tax (Appeals) has also agreed with the action adopted by the Income-tax Officer. According to the Commissioner of Income-tax (Appeals) it appears that dealings in shares are bogus. He pointed out that the assessee has deliberately sold, 7,000 shares at a lower rate to incur the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions. Summons can be issued under section 131 to compel them to appear before the ITO or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on 9-11-1982, when the sale was on 22-10-1982. Merely because of the fact that all shares were delivered after 10/15 days from the date of sale also does not affect the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue. (m) The Calcutta High Court in the case of CIT vs. Kundan Investment Ltd. 263 ITR 626 the Court held: We may deal with the loss in share transaction first. The grounds disallowing share loss by the AO affirmed by the Commissioner of Income Tax(Appeals) were those that out of the four blocks of shares delivery of three blocks were received after five months and the price was also paid after five months, but were immediately sold at a loss. The other grounds were that the share broker only in respect of one group was produced but the other share brokers did not appear despite notice. The books of accounts of the share broker, who appeared, also show some discrepancies in the entries made. On these grounds this transaction was held to be ingenuine. Whereas the Tribunal had found that all relevant documents relating to contract notes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee could not produce the broker through whom the shares were sold, the same did not affect the genuineness of the transaction when the assessee disclosed the identity of persons from whom the shares were purchased and to whom sold. Even when two views are possible, if the view taken by the learned Tribunal is possible, it cannot be said to be perverse. Having regard to the proposition of law as discussed above and the facts and circumstances of the case, we find that in the present case, the view taken by the learned Tribunal cannot be said to be erroneous or perverse. Therefore, we answer the question No. 3 in the negative in favour of the assessee. 20. We therefore note that since the purchase and sale transactions are supported and evidenced by confirmations, Contract Notes, Demat statements and bank statements etc., , the same could not be treated as bogus simply on the basis of some report of the Investigation Wing and/or the orders of SEBI in case of entirely different scrip. Moreover it was submitted before us by Ld AR that the Ld. CIT(A) was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eletion of the disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO. In this case it was held: We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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