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TMI Blog2022 (4) TMI 1479X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 153A, in cases where proceedings are not pending could not be applied in absence of any incriminating material. 3. BECAUSE the reliance on 'reports of investigation wing' etc. did not constitute 'material' relevant for the purpose of assessment in this case, as the 'appellant' had never been confronted with the same in right perspective and as such the addition made on the basis of such an ex-parte information and reports etc. is wholly vitiated. 4. BECAUSE the computation of income was not even relevant for the purpose of assessment and the same is vitiated, as during the course of search (even in pursuance of joint warrant of Authorization), no incriminating material was found which could impinge upon the genuineness of the unsecured loan & genuineness of capital gain as shown in the return of Income. 5. BECAUSE the learned CIT(A) has erred in law and on facts in confirming the addition made by AO in the asstt order in respect of disallowance of Long Term Capital gain claimed u/s 10(38) of the Act & added to the income u/s68/69 as under- S. No. Name of company Amount of LTCG as shown in the return of income & claimed exemption u/s 10(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to generate artificial capital gains. The department held that the present assessees has also arranged long term capital gains on the script of Sulabh Engineers & Services Ltd. which was part of 84 penny stocks identified by the department in it's investigation report.. It was submitted that now these cases are covered in favour of the assessees by various orders of the Lucknow Bench of the Tribunal where under similar facts and circumstances and on various scripts including scrips dealt by the assessees, the bench has allowed relief to the assessees. Reliance in this respect was placed on the following case laws :- 1. Shri Jai Prakash Sharma Vs. DCIT, Central Circle-II, Kanpur in ITA No. 544/Lkw/2019. 2. Uma Shanker Dhandhania vs. ITO(1)5, Kanpur in ITA No. 475 & 681/Lkw/2019. 3. Smt. Madhu Agarwalla vs. ACIT in ITA No. 511/Lkw/2018. 4. Shri Achal Gupta vs. ITO-3(1), Kanpur in ITA No.501/Lkw/2019. 3. It was further submitted that even various other benches of the Tribunal has taken a similar view in similar cases and reliance in this respect was placed on the following case laws: 1. Shri Deepak Kumar Agarwal vs. ACIT, CC-3(1), Kolkata in ITA No. 125 & 126/Kol/2018. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities below but fairly agreed that the issue are covered in favour of the assessee by various orders of the Tribunal by various benches. 5. We have heard the rival parties and have gone through the material placed on record. We find that assessees during the year under consideration sold certain shares of the script Sulabh Engineers and Services Ltd. through recognized stock exchange through screen based trading system and also through authorized stock brokers and filed before Assessing Officer various evidences of having sold these shares through these authorized brokers. 6. The copies of these documents in ITA No. 410/Lkw/2019 as filed before Assessing Officer are placed in Paper Book as detailed below: 1. Details of long term capital gain on sale of 291028 shares of Sulabh Engg. & Services Ltd. pg. 26. 2. Copy of detail of purchase P.B. Pg. 22. 3. Copy of notice for sub division of shares P.B. Pg.25. 4. Copy of assessee's account in the books of share broker SPFL Securities Ltd. (P.B.Pgs. 27-29) 5. Copies of bills in respect of sale of shares sold through broker (Paper Book Pgs. 30-63) 6. Copy of D-MAT account of the assessee with Prabhat Finance Services Ltd. (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a copy of gift deed is placed in P.B. pgs. 23-24. The allotment of such shares was directly made by company to Shri Maha Veer Prasad Agarwal father of the assessee and copy of allotment letter is placed in P.B. pg.28. The payment for the above shares was made by the father of assessee from his bank account in Bank of Baroda a copy of such bank account is placed in P.B. pgs. 29 to 45. The relevant entries are appearing in P.B. pg.34. Such shares were credited in the DEMAT account of assessee with Prabhat Financial Services Ltd. a copy of such DEMAT account statement is placed in P.B. pages 101 to 102. 9.1 These documentary evidences for purchase and sale of shares has not been disputed by the department and neither any adverse findings has been made on such evidences. The only reason for rejecting the claim of the assessees is the investigation report of department and certain adverse statements of the some persons. The assessees had requested to Assessing Officer for making available complete statements of such persons and also wanted to cross examine the witnesses of Revenue. A copy of request letter to Assessing Officer is placed in P.B. pgs.177 & 111 respectively. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. 2 to 8. A part of the shares were sold by India Infoline Ltd. in the two years and the contract notes issued by India Infoline are placed in paper book Pgs. 9 to 14 and 11 to 15 in the two years respectively. Copy of Demat Account of the assessee where the shares allotted by company were credited and from where the shares were sold is placed at paper book pgs. 33 to 40 and 24 to 31 respectively in the two years. The copy of bank account wherein the proceeds were credited is placed at pgs. 2 to 8 and 2 to 10 respectively for both years. From the contract notes issued by the broker India Infoline Ltd. we find that assessee had paid service tax and STT and shares were sold through screen based transactions wherein the exact time and order numbers are mentioned. The copy of Demat statement of assessee shows credit of ten lac shares and on sale of 1,11,700 during the AY 2014-15 the balance is reflected at 8,88,300 shares as on 31/03/2014 (PB-26) and on sale of 30,000 shares during AY 2015-16, balance shares are reflected at 8,58,300 as on 31/03/2015 (PB-27). These balance shares of 8,58,300 are reflected in the Demat statements upto 31/03/2019. From the Demat statement, we further ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat long term capital gain on sale of equity shares of Sulabh Engineering and Services Ltd. of Rs. 1,12,13,010/- during the current financial year, is genuine. 8. We note that the assessee has earned long term capital gain on sale of equity shares of Sulabh Engineering and Services Ltd. of Rs. 1,12,13,010/- during the current financial year. During assessment proceedings details and evidences in support of purchase and sale of shares as asked for have been submitted before the learned Assessing Officer from time to time. However, the ld. Assessing Officer has treated the transaction in equity shares of M/s Sulabh Engineering and Services Ltd. as bogus and added Rs. 1,12,13,010/- being Long Term Capital Gain on sale of such equity shares only on the basis of his suspicion without bringing any adverse material on record in support of his contention in spite of the fact that the sale transactions have been done through recognized exchange through the authorized broker and all relevant supporting documents have been submitted before the learned Assessing Officer. Further, learned Assessing Officer has also added Rs. 56,065/- on account of undisclosed commission payment @ 0.5% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs.Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum) 15. We note that the ld. D.R. had heavily relied upon the decision of the Hon'ble Bombay High Court in the case of Bimal Chand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Delhi High Court vide order dated 15.01.2021 in an appeal filed by Revenue against the order of Tribunal the Hon'ble Court in a consolidated order in three appeals dismissed the appeals of the Revenue. In I.T.A. No.125, on the basis of same investigation report, the Assessing Officer and CIT(A) had not allowed claim of the assessee of long term capital gain on the scrip M/s Gold Line International Finvest Ltd. In I.T.A. No. 130 and 131 similar claim was made on scrip of M/s Eastern Bio Organic Food Processing Ltd. and on scrip of Rander Corporation Ltd. The authorities below had not allowed claim of the assessee on the basis of same investigation report on the basis of which claim of the assessee has been rejected. These scrips are mentioned at Sl. No. 24, 19 and 49 in the list of penny stocks prepared by investigation team. The Tribunal however allowed relief to the assessee by separate orders which were confirmed by Hon'ble Delhi High Court. The relevant findings of Hon'ble court are reproduced below: "3. The present appeals under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the 'Act'] are directed against the common order dated 6t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impugned Order, relevant portion whereof reads as under: "21. A perusal of the assessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings. 22. xx xx xx 23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere pre-existing statements recorded by the Investigation Wing and the same cannot be the sole basis of assessment without conducting proper enquiry and examination during the assessment proceedings itself. In our humble opinion, neither the Assessing Officer conducted any enquiry nor has brought any clinching evidences to disprove the evidences produced by the assessee. The report of Investigation Wing is much later than the dates of purchase / sale of shares and the order of the SEBI is also much later than the date of transactions transacted and nowhere SEBI has declared the transaction transacted at earlier dates as void. xx xx xx 30. Considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand." 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments 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 unacc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the Hon'ble court has held that startling spike in the share price and other factors may be enough to show circumstances that might create suspicion but the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The Hon'ble court further distinguished the judgment in the case of Suman Podar which was in favour of Revenue. The Hon'ble court further held that case of Sumati Dayal u/s CIT was also not applicable to the assessee. The Hon'ble court further held that reliance placed by the Assessing Officer on the investigation report of Investigation Wing 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. 11. In view of above facts and circumstances and in view of judicial precedents, Ground Nos. 3 and 4 are allowed in ITA No. 475/Lkw/2019 and Ground No. 1, 2, 5 & 6 were not argued, therefore, same are dismissed as not pressed. In view of above, appeal in ITA no. 475/Lkw/2019 is partly allowed. 12. As regards, appeal in ITA No. 681/Lkw/2019, Ground Nos. 5 and 6 are allowed. Ground Nos. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through penny scripts companies/paper companies?" 2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:- "9. In our considered opinion, in such case assessee 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 Polyfab (P.) Ltd. v. 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 exami ..... 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