TMI Blog2022 (9) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... eve that income assessable to tax has escaped assessment and the AO is not required to establish the fact by legal evidence or conclusion. Accordingly we do not find any error or illegality in the impugned order of CIT (A) qua this issue. This ground of the assessee is dismissed. Bogus sale of shares claimed u/s 10(38) - Penny stock - As in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of Report of the Investigation Wing of the Department in some other cases where some persons were found indulged in providing accommodation entry, and further it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Taking into consideration various documentary evidences produced by the assessee in support of his claim and further relying upon various decisions of this Tribunal as well as the decision of Hon ble Jurisdictional High Court including the decision in case of CIT vs. Pooja Agarwal [ 2017 (9) TMI 1104 - RAJASTHAN HIGH COURT] as well as in case of PCIT vs. Pramod Jain Others [ 2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case are that the assessee filed his return of income on 28.06.2010 for the assessment year 2010-11 declaring total income of Rs. 70,260/- claiming exempt Long Term Capital Gain of Rs. 13,53,298/- under section 10(38) of the Income Tax Act, 1961. Information was received from Directorate of Investigation that an organized racket of generating bogus entries of LTCG in penny stocks has been unearthed as a result of detailed investigations. Statements were recorded under section 132(4)/131 of the IT Act. SEBI had passed some orders on issue of manipulation of Share market for providing accommodation entries of LTCG in 11 scrips with a finding that price in these scrips are rigged and banned trading in such scrips. As a result of such investigations and search/survey the beneficiaries of such bogus LTCG were identified. The assessee appellant is also one of the beneficiary and details of transactions in case of assessee from bogus scrip during the year is as under :- Sr. No. Name or Scrip Trade Value Exempt income declared in the return of income. 1 Nouvea Multi Media Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .01.2008 for Rs. 6,33,124/- inclusive of STT, Stamp duty etc. 6) Shares were deposited in Demat account in Jaipur and were credited on 24.01.2008. 7) 20,000 shares were sold in FY 2009-10 for Rs. 20,03,929/- which was credited in bank account on 22.03.2010. The AO considered the above submissions of the assessee but did not accept the contentions of the assessee. The AO concluded that the alleged LTCG shown by the appellant on account of sale/purchase of shares of NMML is a bogus transaction and it actually represents unaccounted money routed back to appellant in the garb of LTCG. The AO also noted that one beneficiary in statement recorded under section 132(4) of the Act stated that he paid commission @ 6% in cash in lieu of bogus LTCG entry shown from artificial trading in penny stock bogus i.e. NMML. Thus, the AO added Rs. 13,70,805/- to total income of assessee under section 68 of the Act and commission paid @ 6% to the tune of Rs. 82,248/- was added total income of the assessee under section 69C of the Act. The AO further disallowed claim of the assessee under Chapter VIA of Rs. 1,00,000/- as the assessee failed to furnish any documentary evidence in support of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO examined these evidences i.e. transactions entered into by the assessee vis - vis the return of income of the assessee. The AO noted that the assessee has not disclosed the above transaction in the return of income filed. After appraisal of these materials on record, there is enough reason to believe that the assessee has clearly failed to disclose all material facts for determination of income. This information along with the material on record constitutes a tangible material to form the belief that the income assessable to tax and claimed as exempt from tax has escaped assessment. Therefore, once the original return of income was not taken up for scrutiny assessment, then the said information and facts discovered by the Investigation Wing Kolkata constitutes a material on the basis of which the AO can reasonably form a belief that the income in the shape of long term capital gain claimed as exempt has escaped assessment within the meaning of section 147 of the IT Act. At the stage of reopening of the assessment what is required is prima facie reason to believe that income assessable to tax has escaped assessment and the AO is not required to establish the fact by legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the appellant had purchased 9000 equity shares of the Company on 09/01/2008 and 11000 shares on 15/01/2008 in DEMAT format, as it is evident from the Demat account.This is online transaction. The company is listed on Recognised Stock Exchange (BSE). This information is very vital and proves the fact that the Appellant had in fact purchased the equity shares of Nouveau Multi Ltd. Under these circumstances, there is absolutely no basis for the AO to presume that the transaction for purchase thereof was not genuine. It may further be noted here that the transaction of purchase of shares has been done directly from the Company. No broker/middleman was involved. The Scrip Company was listed on recognized stock exchange.Further, the AO has not proved that the cash emanated from the coffers of the appellant. In simple words the AO has not proved the cash by the assessee was paid to whom and when? In the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Transaction of Sale of the shares is genuine: In view of the favourable market conditions, appellant has sold the equity shares through Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has heavily relied upon the statement of seven brokers recorded u/s 131 during the survey proceedings u/s 133A of the Act. First and Foremost, it is respectfully sumitted that the Ld. AO has not provided the copy of the said statement during the Assessment proceedings on which he has heavily relied upon to draw a conclusion which is against the Principle of Natural Justice. The action of Ld. AO was in violation of principle of natural justice which is bad in the eyes of law. No such opportunity of cross examination was given to Appellant at the stage of Assessment Proceedings before relying upon it to conclude the claim of Appellant as bogus to the extent it is adverse to the Appellant. In the case of State of Kerela v. K.T. Shaduli Yusuff (1977) 39 STC 47811), the Hon able Supreme Court held that One of the rules which constitutes a part of the principles of natural justice is the rule of audialteram partum which requires that no man should be condemned unheard. It is indeed a requirement of the duty to act fairly, which lies on all judicial authorities, and this duty has been etended also the authorities holding admininstrative enquiries involving civil consequneces or affe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts and shown in the returns filed in the regular course. Hence there is no scope for disbelieving transactions as bogus. It is respectfully submitted that there is no material evidence on record against the Appellant except some vague, confusing enquiries sought by the Ld. AO to draw the conclusion which adversely affects the Appellant. The Ld. AO has not appreciated the fact that there cannot be a sale without a purchase. There was no scope for suspecting these transactions. Therefore, assessment made by Ld. AO and confirmed by Ld. CIT(A) which is predominantly influenced by suspicion is liable to set aside. Reliance is placed on the Judgement of ITAT Hydrebad in the case of Santosh Kumar Goyal (ITA No. 168/Hyd/2011) which was reported on November 6, 2013. The ratio of the said judgement is to the effect that - having been followed by the assesse from the stage of purchase till the shares are Dematted there is hardly any room to doubt or suspect that the transactions in purchase are not genuine. observations of the AO that the purchases and sales of shares were made with reference to penny stocks which were purchased at a nominal price and sold at a very high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee after due appreciation of evidence on record, on relevant considerations, and on sound reasonings. The finding neither appears suffering from any perversity nor is of such nature that cannot be reached at all. Hence, no substantial question of law is involved in this appeal.(Para 10) Where shares were sold by assessee for consideration through named stock broker and appellant furnished all the evidence to establish genuineness of transactions, AO was not justified in making addition u/s 68. 2) Hon ble Rajasthan high Court in the case of CIT v. Pooja Agarwal , 160 DTR 0198 has held as under:- (See P.B. of Judgements Pg. No.14-19) However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant. The same was confirmed by CIT appeal, in view of this we are of the opinion that the view taken by the Tribunal as well as CIT is correct. 3) Hon ble ITAT, Jaipur Bench in the Shri Pramod Jain, Shri A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. In that view of the matter, we do not see any merit in this appeal of the Department. 3.0 In the result, the appeal filed by the Revenue is dismissed. 5) Hon ble Bombay High Court in CIT v. Shyam R. Pawar (2015) 54 taxmann.com 108 on a similar issue has held: Assessee declared capital gain in sale of shares of two companies-Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held such transaction as bogus and having been done to convert unaccounted money of assesse to accounted income and therefore, made addition u/s 68- On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus- Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted-Heldyes. 6) Hon able Gujarat High Court in PCIT v. Ramniwas Ramjivan Kasat (2017) 82 taxmann, com 458 (Gujarat) on a similar issue has held: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of shares were supported by proper contract notes , deliveries of shares were received through demat accounts http://www.itatonline.org 11 ITA No.19/Kol/2014 Dolarrai Hemani, AY 2005-06 maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money. 2.9.6. In view of the aforesaid facts and findings and the judicial precedents relied upon , we have no hesitation in directing the ld AO to accept the claim of exemption of LTCG of the assessee arising out of sale of shares of G.K.Consultants Ltd and accordingly allow the ground raised by the assessee in this regard. 9) Hon able ITAT, Ahmedabad Bench in Pratik Surya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself an evidence to prove the genuineness of share transaction. Merely because the sale of shares fetched a handsome price, which price is supported by official quotation issued by Magadh Stock Exchange, therefore, there can not be any reason to doubt the genuineness of the sale transaction of the shares. It is settled position of law by the decisions reported in 26 ITR 776(SC), 37 ITR 288(SC), 63 ITR 449(SC) and 1 SOT 90 (Mum) (supra) to support that suspicion even strong enough cannot take the character of evidence. Considering the fact that the shares were allotted to the assesse which were kept in demat account, the decision was made in favour of assesse. The ld. A/R thus prayed that the addition made be deleted. 5. On the other hand, the ld. D/R supported the orders of the lower authorities and submitted that the order of the ld. CIT (A) be upheld. 6. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. The AO has doubted the transactions of purchase and sale of shares by the assessee of M/s. Nouvea Multi Media Ltd. on the basis of information received from the Directorate of Investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is a regular investor in shares. We also find that in the case in hand the assessee purchased 20,000 equity shares of M/s. Nouvea Multi Media Ltd. through Mawerick Share Broker Pvt Ltd. who is registered in BSE for a sum of Rs. 6,33,124/- which includes STT, Stamp Duty etc. vide Bill No. 546 dated 09.01.2008 and 0036 dated 15.01.2008. The shares were deposited in DMAT A/c with M/s. Alankit Assignment Ltd., Jaipur and the quantities of 20000 shares were credited on 24.01.2008. M/s. Nouvea Multi Media Ltd. was listed in stock exchange and the shares were purchased at the rates prevailing on the date of purchase in BSE. The assessee received 40000 Right Shares issued by the company later on. We find that the assessee has duly reflected all these shares in the Books of accounts as an Investment and on sale of shares, the assessee has claimed exempt LTCG in the return of income for the assessment year 2010-11. Thus it is clear that 20,000 shares acquired by the assessee on 15.01.2008 in Demat format as it is evident from the Demat Account and reflected in the Books of account for the year under consideration. We further note that the assessee produced the copy of purchase bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence produced by the assessee can be controverted. In the absence of such contrary material or evidence brought on record by the AO and the evidence produced by the assessee is otherwise independently verifiable being the documents in the shape of bank statement, Demat account, books of account and bills for which the assessee has no control or say, therefore, the said evidence cannot be manipulated by the assessee. Once the evidence produced by the assessee is not prepared or beyond the scope of any manipulation by the assessee, then the assessee has discharged his onus to prove the transaction of purchase and sale of shares and consequential capital gain. The Ld. A/R has filed all the possible documentary evidence relating to purchase and sale of the stock on which the LTCG was earned. All the details are filed in assessee s Paper Book and the same were filed before the Ld. AO. The details filed are as under: S.No. Particulars Paper Book Page No. 1. Copy of Contract note of the Broker through whom the shares were sold. 102 2. Copy of Ledger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... many judgments that mere statement u/s 132(4) or u/s 131 is not sufficient to make an addition. A statement made must be relatable to some incriminating material or the statement must be made relatable to material by subsequent inquiry/investigations. Hon'ble High Court of Rajasthan in the case of Mantri Share Brokers PL ( 96 taxmann.com 279) have held as under: Section 69B of the Income-tax Act, 1961 - Undisclosed investments (Burden of proof) - Whether where except statement of director of assessee-company offering additional income during survey in his premises, there was no other material either in form of cash, bullion, jewellery or document or in any other form to conclude that statement made was supported by some documentary evidence, said sum could not be added in hands of assessee as undisclosed investments - Held, yes Paras 10-11] [In favour of assessee] Further, Hon'ble Delhi High Court in case of Harjeev Agarwal (2016) 70 taxmann.com 95 (Delhi) held thus: ...A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mod Jain Others in ITA Nos. 368 to 372/JP/2017 dated 31.01.2018. The relevant extract on the issue at page 24 to 28 are as under: As regard the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under:- 5. We have heard Mr.KavinGulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senior counsel who appeared for the revenue. 6.According to us, not allowing the assessee to cross-examine the witness 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 as based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in para 46 as under:- 46. ln situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expense and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI of by the departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has introduced his own unaccounted money by way of bogus long term capital gain. 6.3. The issue of penny stock and consequent additions made has elaborately dealt with by ITAT Jaipur Bench in the case of Pramod Jain Others (supra) and relying on the decision of Hon ble Rajasthan High Court in the case of CIT vs. Pooja Agarwal, 160 DTR 0198 (Raj.) deleted the addition by observing as under :- In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/ merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account. On further appeal by the department to the Hon ble Rajas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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