TMI Blog2022 (8) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith. Respectfully, following the judgment of Pr. CIT vs. Smt. Krishna Devi [ 2021 (1) TMI 1008 - DELHI HIGH COURT] we hold that in absence of any specific finding 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 as far as long term capital gain earned on sale of share. Capital gain earned by the assessee cannot be held as bogus merely on the basis of some report unearthed in case of third party/parties unless cogent material is brought against particular assessee on record. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of assessee s appeal are allowed. - I.T.A. No. 391/Ahd/2018 - - - Dated:- 26-8-2022 - Shri Waseem Ahmed, Accountant Memebr And Shri Siddhartha Nautiyal, Judicial Memebr For the Appellant : Shri Darshan Gandhi, Advocate For the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company M/s Comfort Fincap Ltd and their director despite the fact that she has purchased shares in private placement. Therefore, the AO show caused the assessee proposing to treat the impugned long term capital gain as bogus and represents the unexplained cash credit under section 68 of the Act. 3.2 In response to the show cause notice, the assessee submitted that she has been dealing in investment in shares and securities of different companies since many years and also acting as sub-broker for Kunverji Finstock Private Limited Ahmedabad. She, in the normal course, invested in the shares of M/s Comfort Fincap Ltd in the month of June 2011 in offline transaction which was supported by the share application form and KYC document. Likewise, the payment was made through banking channel. The shares were dematerialized with M/s Kunverji Finstock Private Limited and kept in demat account till the same were transferred in the year under consideration through BSE platform during the month of October 2013 to February 2014 at different price which was supported by demat account, the contract note, STT and payment received in bank through ECS. Therefore, as per the provision of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unknown, still the assesse made investment at Rs. 9.9 lakh without any basis which suggest the scheme of pre-arrangement. It is true that the price of shares at stock market is governed by several different factors but there is some consistency and basis whereas in the case of impugned company within the period of a year, the price of the share sharply increased as high as Rs. 448 per share and thereafter started falling and reached to Rs. 14 per share and after that no price movement noted. The DDIT(Inv.) carried out countrywide search and survey at different entry operator, stock broker and others. In the process several stock broker has accepted that they have provided bogus long term capital gain in scrip of M/s Comfort Fincap Ltd to the beneficiaries. The CEO of the company and key person of the comfort group Shri Anil Aggarwal also accepted the same. The SEBI vide order dated 19-12- 2014 and 02-06-2016 also restricted the M/s Comfort Fincap Ltd and M/s Comfort Securities Ltd from access to the market in any manner. 3.6 Based on the above, the AO concluded that like thousands of the beneficiaries of modus operandi of penny stock, the assessee is also one of the beneficiary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory, unless- (a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited: and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory. (emphasis added). Thus the is on the taxpayer to explain to the satisfaction of the AO the nature and source of any sum credited in his/her books, In this case, the AO on information in his possession had reason to believe that the transaction of shares was bogus., hence the onus was on the appellant to rebut this presumption which she has failed to do miserably. Further there is no substance in the contention of the appellant that statement of Anil Agarwal, who had accepted before Department authorities that he had provided accommodation entries for LTCG in the scrip of Comfort Fincap, was not provided to her. The appellant had 55,000 shares of Comfort Fincap and Anii Agarwal is the main behind Comfort Fincap. The appellant could have produced Anil Agarwal before the AO to deny the allegations of. rigging In this share. The appellant did not do so. Thus the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant's own submission she has been a regular investor. Also such poor financials do not warrant any spectacular rise in share price especially in the absence of any corporate announcements regarding big deals etc. (v) The financial of the company as detailed above do not warrant price of Rs,367/- on opening for trading when the company is listed on the stock-exchange. (vi) Key person of Comfort Fincap admitted during search conducted by the Investigation Wing of the Income Tax Department, Mumbai that they provided accommodation entry for LTCG in the scrip of Comfort Securities. (vii) Vide order dated 12/19/2014 and 2/06/2016, SEBI had restrained Comfort Fincap Ltd. and Comfort Securities Ltd. from accessing the securities market and buying and selling of securities. All the above aspects/facts mentioned above lead to the conclusion that transaction in question was rigged in order to garner huge LTCG and claim the same as exempt, Hon'bie Supreme Court in Sumati Dayal v, Commissioner of Income-tax [1995] 80 TAXMAN 89 (SC) held as follows ; 4. it is no doubt true that in all cases in which a receipt is sough! to be taxed as income, the burden lie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, Nagpur Bench in Income Tax Appeal No. 18/2017 in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimlchand Jain vs Pr.CIT-I, Nagpur . Another has confirmed addition on account of LTCG on penny stock shares, Hon'bte Court has held as follows ; The assessee had on the advice of an income tax Consultant purchased shares of two penny stock Kolkata companies i.e., 8000 shares at the rate of Rs.5,50 per on OS.08.2003 and 4000 shares at the rate of Rs.4/~ per share On - 05.08.2003 from Syncom Marketing Pvt Ltd. and of Skyzoom Distributors Pvt. Ltd. the payments were made by the assessee In cash for acquisition of shares of both the companies. The address of both the companies was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd and the address of the said broke was incidently the address of the two companies, Both the companies intimated the assessee on 07,04,2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the assessee received the shares of the new company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what was going on in the whole transaction except paying a sum of Rs.65,000/- in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs.5.50 Ps. Per share and Rs.4/- per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at Rs.486.55 Ps and Rs.485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/- had jumped to Rs.485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he SEBI against the impugned company. According to the ld. AR, the script of the impugned company was never delisted from the stock exchange and remained active all over. The learned AR also reiterated the contentions raised before the lower authorities. 6.2 On the other hand, the learned DR contended that shares were purchased off market which were de-materialized later before sale of shares. According to the learned DR, there is no human probability for rise in the share price of non-working company. The learned DR vehemently supported the order of the Authorities below by reiterating his findings contained in their respective orders. 7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the long term capital gain declared by the assessee on sale of shares of M/s Comfort Fincap Ltd for ₹ 1,15,49,320/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph which has been also confirmed by the learned CIT(A). 7.1 The 1st observation of the AO for hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action was taken against the director promoter and the company from accessing to share market. 7.3 Further, the price of a share at stock exchange cannot be linked to the financial strength of the company, as such the same is governed by several market driven factors. The assessee is also a regular investor and have made investment in the scrip of other companies. We also note that the assessee has acquired 55000 shares of impugned company whereas the shares were transferred only 34400 in numbers during the period of October 2013 to February 2014 and remaining shares are still held by the assessee. We also note the price of the impugned share also reached as high as Rs. 448 per share whereas the highest price at which, the assessee transferred was of Rs. 395 per share and lowest was of Rs. 187 per share. Thus in our considered view had the assessee indulged in pre-arrange transaction for taking accommodation entries then he should have transferred the entire holding and that too at the highest possible price. 7.4 The AO alleged that the CEO of Comfort Fin Securities and key person of the comfort group in the statement recorded before the DDIT Kolakata admitted to have provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that cash had changed hands, has not been brought on record by the Revenue and there is also no such whisper in the order of the AO. There was no information brought on record suggesting that there was exchange of cash against the long-term capital gain shown by the assessee. Likewise we also note that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary documentary evidence in support of the identity, genuineness of transaction and creditworthiness of the parties. Therefore the same cannot be made subject to tax under the provisions of section 68 of the Act. 7.7 We also note that there was no dispute raised by the Revenue with respect to the following facts: 1. Purchase consideration of share was made through cheque 2. Share was duly dematerialized in demat account 3. Shares were sold through stock exchange after the payment of STT. The transactions have been confirmed by brokers. 4. The payment were received through ECS through demat account 5. Inflow of shares are reflected in demat account. Shares are transferred through demat account and buyers do not know the assessee. 6. There is no evidence that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith. 7.11 In holding so we draw support and guidance from the judgment of Hon ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under: 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 afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels. The above noted 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 proba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. 7.14 At this juncture we also feel pertinent to refer the order of coordinate bench of Indore in case of Shivnarayan Sharma Ors bearing ITA Nos. 889/Ind/2018, 474,206,60,987/Ind/2019, where in identical fact and circumstances, it was held as under: 16. Since we are adjudicating the above stated common issue on the basis of above assessee namely Shri Shivnarayan Sharma, we note that the assessee purchased 6000 equity shares of Conart Traders Ltd on 22.10.2011 at a cost of Rs.1,50,000/- . There is no restriction under the law to purchase equity shares on off line mode. Vide order dated 22.3.2013 of the Hon ble Mumbai High Court M/s Conart Traders Limited was merged with M/s SAL and in lieu there of 6000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months since purchased on 22.10.2011, assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through a registered broker and all the transactions of sale of shares took place on the recognised stock exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI and nor the trading of these scrips were suspended. The assessee also deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that not allowing the assessee to cross examine the witnesses by the adjudicating authori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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