TMI Blog2022 (7) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... k money in his books as bogus long term capital gain - HELD THAT:- The very premise for which the addition is made has been held to be not correct and thus consequent addition made by A.O. for alleged expenditure is unjustified and unsustainable. It is seen that the A.O. has made adverse inference which is not based on any material or evidence on record. A.O. has not even stated as to whom the aforesaid money is paid so as to constitute the expenditure incurred which may require to be explained by assessee. It is settled position of law the onus is on A.O. to show first that the expenditure is incurred and question of same required to be explained by assessee arises thereafter. In the first place there being no evidence of expenditure incurred by assessee, the question of any addition for the same does not survive. The addition made by A.O. is unjustified and unsustainable. We therefore hold that there is no case for making any addition u/s. 69C - Addition made by A.O. has correctly been deleted by learned CIT(A). Gain on sale of land - capital gain or business income - HELD THAT:- The assessee has sold properties and surplus arising on the same has been declared as long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2014-15. The grounds raised by the Revenue in this appeal are as under: i. Whether on the facts and circumstances of the case of CIT(A) was right in holding that the transaction of sale of shares of M/s. Out of City Travel Solutions Ltd. is genuine only because the transactions were properly documented? ii. The Ld. CIT(A) erred in ignoring the findings of the Investigation Wing, Calcutta, that the shares were transferred to the beneficiary at a very nominal price through preferential allotment or off-line sales and the prices of these shares are rigged by the dummy operators. iii. The Ld. CIT(A) erred in ignoring the findings of the SEBI, holding that SEBI orders are against companies and not against individual traders, ignoring the fact that the SEBI order clearly brings out the modus operandi employed by the company M/s. Out of City Travel Solutions Ltd. to route unaccounted money back to the books of the beneficiaries. iv. The Ld. CIT(A) erred in holding that the transactions are genuine just because the payment was made through banking channel and shares were demated. v. The Ld. CIT(A) erred in ignoring the fact that the penny sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t u/s. 68 of IT. Act 1961. Assessing Officer accordingly made addition at Rs. 5,73,42,518/- being sale proceeds of shares to the income declared. 4. The A.O. has made addition u/s. 69C of IT. Act 1961 at Rs. 28,67,126/- as alleged expenditure on account of commission paid for bringing back money in his books as bogus long term capital gain. The A.O. has computed the aforesaid sum as 5% of sale proceeds of share reflected in books of account. 5. During the previous year relevant to Asstt. Year 2014-15, the assessee has sold properties and surplus arising on the same has been declared as long term capital gain. The investment made by assessee is recorded in books of account as investment being capital assets. The A.O. has referred to statement of assessee as reproduced in assessment order at Page 20 to 27 to conclude that assessee has admitted that he is carrying on business in Real Estate. Hence he held that income/gain on selling of immovable properties is liable to be assessed as business income. Accordingly, the A.O. assessed surplus arising on sale of immovable properties as income under the head Income from Business Profession . 6. Against the order passed by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is pre-arranged method to evade tax and laundering of money. A.O. has referred to various judgments and GIST of such decisions at pages 48 to 54 to draw support for the conclusion that the transaction in respect to long term capital gain on sale of shares made by appellant is bogus. A.O. has thus finally concluded that sale proceeds of shares is liable to be assessed as unexplained cash credit u/s. 68 of Income Tax Act 1961. The A.O. accordingly has made addition of Rs. 5,73,42,518/- to the income declared. 6.2 The shares held by appellant in Asstt. Year 2013-14 have been sold in open market on screen based trading at BSE during the period from Dec. 2013 to Jan. 2014. The details of sale have been reproduced in assessment order at pages 12 to 14. The details as reproduced in assessment order indicate the time of trade as well as market rate at which the aforesaid transaction has been completed. The aforesaid transaction in respect to sale of shares is corroborated by contract notes of the registered broker which were also placed on record before A.O. and also before me in the appellate proceedings. The genuineness of contract notes is beyond doubt. The perusal of contract not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d factual position A.O. could not have concluded that sale proceed of shares are unexplained credit and liable to be assessed u/s. 68 of Income Tax Act 1961 A.O. in assessment order has observed that trading transaction of company have been suspended in 2016. The transactions of appellant are during the year 2013 2014. In view of above nothing adverse can be drawn in respect to observation of A.O. in the assessment order. 6.5 The issue as to assessment of long term capital gain on sale of shares has come up for consideration in case of Shri Kamal Kumar Agrawal and his family members wherein A.O. in the assessment framed u/s. 153A of Income Tax Act 1961 pursuance to search action u/s. 132(1) on 20/01/2005 had concluded that the sale proceeds in respect to sale of shares is bogus and thus same were liable to be assessed u/s. 68 of Income Tax Act 1961. The order passed by A.O. was challenged in appeal. The aforesaid disputed issue has been considered by various appellate authorities from CIT(A) onwards. The matter in case of Shri Kamal Kumar Agrawal has travelled from CIT(A) to that before Hon'ble Apex Court in SLP. The appellate orders have been relied upon by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained cash credit or unexplained investment or unexplained asset. 4.1 I have carefully considered appellant's submissions. The appellant has objected to the treatment given by the AO to his LTCG as unexplained cash credit u/s. 68. Written submissions in this regard have been filed on which comments of the AO were obtained. The AO submitted his comments vide letters dated 14-03-2007 and 12-04-2007. But he has not touched upon the subject as to how section 68 is applicable in the facts and circumstances of the appellants case. His reply is vague. Para 4 of his letter dated 14-03-2007 is regarding the head of income under which he has taxed the LTCG in the hands of assessee. For the sake of ready reference the same is reproduced below: 4. Reg. the head under which the gain is taxable: It is adequately discussed in the asstt. orders as to why the gain arising to the assessee on sale of shares is not a Long Term Capital Gain. It may be reiterated that the 'profit on sale of shares' is, under no circumstances, taxable as Long Term Capital Gains, which enjoy a concessional rate of tax, in the light of the facts narrated in the asstt. orders. This shows the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me already shown by the assessee can be assessed as unexplained cash credit u/s. 68 of IT Act, 1961 under the head income from other sources. The facts of this case are quite similar to the facts in the case of hand. In the aforesaid case the assessee, a Charitable Trust, had shown certain income by way of voluntary contributions. The CIT concerned passed an order u/s. 263 of the IT Act, 1961 holding that the assessee is liable to be assessed on that sum as income from other sources. The said income was determined by CIT as unexplained cash credit u/s. 68. The assessee approached the Hon'ble ITAT with then plea that it had already declared that particular sum as income in the profit and loss account and provisions of section 68 are not applicable to the facts of the case. Identical situation is prevailing in the case of the present appellant. The Hon'ble ITAT on the said order of the CIT u/s. 263 decided the matter in favour of the assessee by giving following finding which is squarely applicable to the present appellants case. The amount which has already been declared as income in the case of assessee cannot be considered for the purpose of invocation of provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench in the case of Shri Rajkumar Khatri in ITA No. 417/Nag/97 has held that the credit appearing in the balance sheet cannot be the basis for making an addition under section 68. From the aforesaid decision, it is clear that the addition made by invoking the provisions of section 68 was not proper. These judgments make it amply clear that the receipts that have already been shown by the assessee as income in the books of accounts/original returns and returns filed u/s. 153A also cannot be treated as unexplained cash credits u/s. 68. In the circumstances of the case and in view of aforecited judgments. I hold that sec. 68 has been wrongly and unnecessarily invoked by the AO to tax the LTCG as unexplained cash credit in the hands of the appellant. Thus, I find addition u/s. 68 cannot be sustained. This finding is further fortified by the fact that all the share transactions have already been held as genuine by me while discussing factual position with regard to same (supra). The addition made by the AO of Rs. 52,24,000/- u/s. 68, therefore, deserves to be deleted. The perusal of extract from the appellate order is reproduced hereinabove clearly explain the legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t A.O. has referred to orders of SEBI in case of M/s. Moryo Industries Ltd. The final order has been passed by SEBI on 22/08/2016 wherein listed entities which according to SEBI are indicted by said order have been listed comprising of 70 persons being various individuals and companies. The aforesaid observations are at clause 79 and page 64 - 66 of the order of SEBI. The perusal of list of entities observed in the aforesaid order does not show name of companies in which investments of shares were made by appellant nor name of appellant is appearing. Considering the totality of facts SEBI order relied upon by A.O. can have no adversity in case of appellant as it does not implicate the transaction of appellant or that of company in which investment has been made by appellant. 6.7 The order of ITAT Nagpur Bench, Nagpur in case of Shri Kamal Kumar Agrawal was challenged by revenue authorities before the Hon'ble Bombay High Court and appeal of revenue was dismissed vide judgment dated 23rd Oct. 2009 by consolidated order in ITA No. 41/2010. The relevant extract from the judgment of Hon'ble High Court is reproduced hereunder: 5) In Income Tax Appeal No. 41/2010, the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e see no merit in the above contentions. The fact that the assessee in the group have purchased and sold shares of similar Companies through the same Broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary evidence was produced to establish the genuineness of the claim. 12) From the documents produced before us, which were also in possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assesses on the respective dates and the Company has confirmed to have handed over the shares purchased by the assesses. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assesses were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assesses. Therefore, the fact that some of the transactions were off market transactions cannot be a ground to treat the transactions as sham transactions. 13) The statement of Pradeep Kumar daga th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on to record that if the shares are sold at prevailing market rate at stock exchange which is properly supported by contract note the genuineness of transaction cannot be disputed. In case of appellant in fact there is no adverse evidence brought on record so as to disbelieve the transaction of sale of shares. The facts in case of appellant are on a better pedestal as compared to facts as have been noted by the Hon'ble Bombay High Court while holding that the transaction of sale of shares is genuine. The ratio laid down by Hon'ble Bombay High Court squarely applies to facts in case of appellant and the addition made by A.O. is unjustified and unsustainable. It is worthwhile to mention that SLP filed by revenue against the order of Hon'ble Bombay High Court has been dismissed vide judgment of Apex Court dated 08/08/2011 in Civil Appeal No. CC12497/2011. 6.9 The Hon'ble Bombay High Court in Income Tax Appeal No. 456/2207 in case of CIT Vs. Shri Mukesh Ratilal Mordia in its judgment dated 07/09/2011 had considered the case of assessment of long term capital gain on sale of shares of four companies. The facts as seen from the order of ITAT would show that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n enquiries, the Ld. CIT(A) could have done so on his own. The Revenue cannot convert good evidences into bad evidences on surmises and conjectures just because certain brokers formed a cartel and manipulated prices of certain stocks and if the assessee is one of the beneficiaries, then solely on the basis of this, it cannot be said that the assessee has entered into some sham transaction. We have no hesitation to say that the findings of the lower authorities are totally based on presumptions and surmises, without any enquiry. After considering direct evidences brought on record by the assessee and the findings of the Hon'ble Jharkhand High Court (supra), we have no hesitation to hold that the transaction has resulted into Long Term Capital gains as shown by the assessee. We therefore direct the AO to accept the gains as Long Term Capital Gains. Sri Dolarrai Hemani v. ITO (ITA 19/Kol/2014) (Kolkata Tribunal) wherein it has been held as under: 2.9.5. We find that the similar issue had been adjudicated by the coordinate bench of this tribunal in the case of DCTT vs. Sunita Khemka in ITA Nos. 714 to 718/Kol/2011 dated 28.10.2015 and in the case of ITO vs. Rajkumar A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, 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 transaction 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). Moreover, issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (supra), wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted. Respectfully following the same vis-a- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to tax on basis of material on records, facts of the case, legal position and judicial pronouncements. Based on these yardsticks the A.O. has not brought any evidence on record to justify addition in view of judicial precedence relied upon by the appellant. Considering the totality of facts and circumstances in case of appellant I hold that the addition made by A.O. is unjustified and is directed to be deleted. Ground of appeal is allowed. 9. The learned DR referred to various facts observed in assessment order to submit that sale proceeds of shares is liable to be assessed as unexplained cash credit u/s. 68 of IT. Act 1961. The learned DR placed strong reliance on the order of the A.O. to submit that relief granted by CIT(A) is not proper and order passed by A.O. be restored. 10. The Counsel of assessee before us has made submission which is reproduced hereunder: A) The assessee had acquired 2,00,000 shares of M/s. Out of City Travel Solutions Ltd. in preferential allotment at premium of Rs. 22/- per share with lock in period of one year (P.1). Investment of 2,00,000 shares at Rs. 46,00,000/- made in Asstt. Year 2013-14 shown in Balance Sheet (P.3). Regular ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing tax at the time of acquisition of shares. Section 55(2)(ac) provides quoted rate of shares as cost of acquisition as on 31/01/2018 in certain cases to determine capital gain. H) Recent decision dated 15/01/2021 of Hon'ble Delhi High Court in the case of Smt. Krishna Devi in ITA No. 125/2020 fully supports the case of assessee. (P-1 to 10) (7, 8, 9, 10) I) i) The assessee invites attention to the case of Shri Kamal Kishore Agarwal and family members wherein Revenue Authorities had concluded that sale proceeds of shares are liable to be assessed u/s. 68 of Income Tax Act 1961 and is bogus transaction. ii) The appeal of Shri Kamal Kishore Agarwal was disposed by order dated 17/04/2007 in Appeal No. CIT(A)-1/1022/2006-07. The Hon'ble CIT(A) after extensively examining the facts and legal position in the said case has accepted the claim of assessee that the transaction was genuine and directed to delete the addition made by A.O. u/s. 68 of Income Tax Act 1961. iii) The aforesaid departmental appeal was disposed by order dated 24th July 2009 wherein various contention raised by revenue were rejected and appeal of revenue was dismissed. The Hon'ble ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 42, 43) [Vol.-II] K) The provisions of section 68 of Income Tax Act 1961 are applicable in respect to item of credit in the books of account which assessee claimed to be in nature of liability and not income. Receipt of sale price of capital assets is shown as income liable to be assessed under head capital gain and is not shown as liability. Provisions of section 68 are inapplicable. Reliance on: Hon'ble ITAT, Nagpur Bench, Nagpur in case of Datta Meghe Institute of Medical Sciences in ITA No. 07/Nag/2007 vide order dated 16/03/2007. (P-1 to 17) (12) [Vol.-I] L) No observation is made in respect to transaction of assessee or is relating to company in which investment has been made by assessee. The information as may be available with A.O. has neither been confronted nor made available to assessee to have his say on the same. Such information is liable to be excluded for framing assessment considering the principle of natural justice. Reliance on: i) Hon'ble Supreme Court order in Civil Appeal No. 4228 of 2016 in the case of M/s. Andaman Timber Industries vide order dated 02/09/2015. M) The various decision as discussed in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The aforesaid transaction in respect to sale of shares is corroborated by contract notes of the registered broker which are placed on record and also before us in the appellate proceedings. The genuineness of contract notes is beyond doubt. The perusal of contract note indicates that security transaction tax has been paid on the transaction in respect to sale of shares by assessee. In the course of assessment proceedings ledger account of assessee with registered broker wherein sale proceeds of shares were being credited and remittance out of same to the account of assessee through proper banking channel was reflected. The genuineness of account of assessee with registered broker is also beyond doubt. A.O. scanned and pasted graph to indicate activity of shares trading in respect to company in which assessee has made investment. The aforesaid graph pasted in assessment order is at page 8 and demonstrates that shares are being regularly traded at BSE. Onus to explain the transaction of sale of shares has been satisfactorily discharged on which long term capital gain has been declared in return. Perusal of assessment order does not show that there is any material or evidence on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s. Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced hereunder: 11) We see no merit in the above contentions. The fact that the assessees in the group have purchased and sold shares of similar Companies through the same Broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary evidence was produced to establish the genuineness of the claim. 12) From the documents produced before us, which were also in possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assessees on the respective date sand the Company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off- market transactions. However, the purchase and sale price of the shares declared by the assessees were inconformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off market transactions cannot be a ground to treat the transactions as sham transactions. 13) The sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubted on mere inferences. Respectfully following the same addition made by A.O. is held to be unjustified and unsustainable. 18. The learned CIT(A) has dealt with the facts and evidence on record extensively while granting relief in the case of assessee. Detailed order passed by the CIT(A) indicating reason for deleting the addition has been reproduced in the paragraphs hereinabove. We note that various adverse inferences drawn by A.O. in assessment order have been correctly dealt with in his appellate order and does not call for any interference. We are in agreement with the findings and reasoning recorded by CIT(A) in his appellate order reproduced hereinabove deleting the addition in the case of assessee. 19. Considering totality of facts and circumstances in the case of assessee and considering legal evidence on record. We hold that that addition made by A.O. is unjustified and unsustainable. We uphold the order of CIT(A) deleting addition made in the assessment framed. Grounds of appeal 1 to 5 of revenue are dismissed. 20. Ground 6 of appeal of revenue relates to challenging the order of Ld. CIT(A) allowing the relief in case of assessee by deleting the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /bonafide transaction is in respect to long term capital gain.. B) No evidence brought on record as to incurring of expenditure for which addition could be made u/s. 69C of IT. Act 1961. C) Addition on inference/assumption cannot be made u/s. 69C in the absence of requisite conditions as per provision of sec. 69C of IT. Act 1961. D) CIT(A) has correctly deleted the addition for detailed reasons given in appellate order. 23. In case of assessee addition has been made u/s. 69C of Income Tax Act 1961 at Rs. 28,67,126/- as alleged expenditure on account of commission paid for bringing back money in his books as bogus long term capital gain. A.O. has computed the aforesaid sum as being 5% of sale proceeds of shares reflected in books of account. The A.O. has made addition as according to him the transaction of sale of share was bogus. The very premise for which the addition is made has been held to be not correct and thus consequent addition made by A.O. for alleged expenditure is unjustified and unsustainable. It is seen that the A.O. has made adverse inference which is not based on any material or evidence on record. A.O. has not even stated as to whom the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted as observed by A.O. in assessment order i.e. he is engaged in the activity of business in property. The adverse inference drawn by A.O. in respect to assessment proceedings is unjustified. In case of appellant the property having been held for more than 36 months as investment indicates that the intention of acquisition of property was to hold the same as capital assets and thus surplus arising on the same correctly declared to be assessable under the head long term capital gain. I therefore hold that no fault can be found with regard to income declared under the head long term capital gain on sale of property. A.O. is directed to accept the long term capital gain as shown in return of income and addition made in the assessment framed on account of business income is directed to be deleted. The ground of appeal is disposed of as per direction given hereinabove. 25. The learned DR placed reliance on the order of the A.O. to submit that relief granted by CIT(A) is not proper and order passed by A.O. be restored. 26. The counsel of assessee before us has made submission which is reproduced hereunder: A) Long Term Capital Gain on sale of land shown at Rs. 39,72,484 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y A.O. in assessment proceedings is unjustified. It is noted that one of the property sold was owned and held for around 9 1/2 years and another property sold was owned and held for 6 years. Property owned and held was enjoyed for deriving agricultural income which is accepted in the case of assessee. Both the properties are held as co-owner. On above factual position it cannot be concluded that surplus arising is business income as held by A.O. In case of assessee property having been held for more than 36 months as investment indicates that the intention of acquisition of property was to hold the same as capital assets and thus surplus arising on the same is correctly declared to be assessable under the head long term capital gain. We therefore hold that no fault can be found with regard to income declared under the head long term capital gain on sale of property. CIT(A) has correctly directed to accept long term capital gain and not assess income as business income. We are in agreement with the findings and reasoning recorded by CIT(A) deleting the addition in the case of assessee. We find no merit in appeal of revenue. Grounds of appeal of Revenue 7 and 8 are dismissed. 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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