TMI Blog2022 (2) TMI 1342X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Akash Agarwal may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.Further, the alleged operators have not named the assessee as a beneficiary in their statements. - Decided in favour of assessee. - ITA No. 2131/Ahd/2018, 2132/Ahd/2018, 2133/Ahd/2018 - - - Dated:- 28-2-2022 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI MADHUMITA ROY, ACCOUNTANT MEMBER For the Assessee : Shri K.P. Singh, A.R For the Revenue : Shri Mukesh Jain, Sr.D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of different Assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals) Ahmedabad arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale consideration Purchase date Purchase Cost Index Cost Exp Gain/loss 1. Shree Shaleen Textiles Ltd. 09.04.2013 16551 16.09.2011 211 0 0 2 Do 10.04.2013 32574 16.09.2011 396 0 0 3 Do 25.09.2013 3110921 16.09.2011 25762 31,60,046 26,369 0 31,33,677 4. The Assessing Officer during the course of assessment proceedings disallowed the claim of exemption of long term capital gains, claimed by the assessee on the sale of shares of M/s Shri Shaleen Textile Ltd. and treated the same as unexplained cash credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se as well as to make nexus with the case: In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices generally through the route of preferential allotment (private placement) or off market transaction. These shares have a lock-in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. Thereafter, the prices of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the operator of the scrip. An Operator is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to take entry of bogus LTCG/STCL in their books and arranges the same through the scripts of penny stock companies. The Operator manages many pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alleged operators have not told in the statements that the assessee was also a beneficiary. (ii) The assessee was not allowed cross examination of said alleged bogus operators. The assessee relied on the case of Dhwani Mahendra Shah and others (1008-09/922/Ahd/2015) wherein it was held that no adverse decision can be taken against the assessee without giving the opportunity of cross examination. In this decision, it was held that claim of the appellant cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidence on record relating to sale/purchase transaction supported by brokers contract note. (iii) The Assessing Officer has not found any fault in the documents relating to purchase and sale of shares including contract notes etc. The payments were received through account payee cheques and the transaction was done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. There is no evidence that cash was re-cycled and the assessee has nexus with the company, its Directors or Operators engaged in price rigging. The assessee invested in stocks which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings, the assessee was given adequate opportunity to discharge the burden but she failed to do so. The Ld. Departmental Representative placed reliance on Para 15 of page 16 of the Assessment Order and Para 19 at page 19 of the Assessment Order to demonstrate that the assessee has not adequately discharged the responsibility cast upon him. The Ld. DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has declared long term capital gain of Rs. 31,33,677/- which was treated by the ld. AO as bogus long term capital gain. At the outset we note issue on hand is squarely covered by the order of this ITAT in the group case of the assessee i.e. Smt. Meera Alpesh Kanugo vs. The ITO ward-3(1)(3) in ITA No. 2130/Ahd/2014 corresponding to the year under consideration i.e. A.Y. 2014-15, where it was held as under: 11. We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has declared long term capital gain of Rs.62,13,945/- which was treated by the ld. AO as bogus long term capital gain. The view taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 13. It may be noteworthy to refer to the Mumbai ITAT in the recent case of Mrs. Pratibha S. Mhatre, Mumbai vs. Income Tax Officer in ITA No.695/Mum./2018 on the long-term capital gains on sale of shares of Shree Shaleen Textiles Limited (same entity in which shares were held by the assessee) allowed the claim of exemption under section 10(38) of the Act. In this case also, as in the present case, the assessment was opened on the basis the report of the Directorate of Investigation(Wing), Kolkata and the AO disallowed the claim on the basis of the statements on oath of the Chairman and Managing Director of company to the effect that they have provided and accommodated bogus Long Term Capital Gains. The ITAT had allowed the claim of the assessee on similar facts. 14. The Luc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities, human behavior, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee's involvement in the scam including that he paid cash and in return received exempt LTCG gains. 18. We also find that ITAT, Ahmedabad Bench in identical facts and circumstances in the case of Shri Pratik Suryakant Shah vs. ITO and others in ITA Nos.810/Ahd/2015 and others has decided the issue in favor of assessee. The relevant extract of the order is reproduced as under: 13. Having heard the rival contentions, we have carefully perused the orders of the authorities below. As mentioned elsewhere, we have considered the facts in ITA No.810/Ahd/2015. We find that the assessee had purchased 3000 shares of Telant Info Ltd from M/s. Mahasagar Securities Pvt Ltd on April 2004. The consideration was paid and the payment of consideration is not in dispute. The shares of Telant Info Ltd were listed in the Bombay Stock Exchange at that point of lime. The shares so purchased were sold through M/s. Alliance Intermediateries Network Pvt Ltd and the consideration was received by cheque. It would be pertinent to mention here that though the shares were purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority, As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that crossexamination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of crossexamination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. 21. We also note that the view taken by the ITAT Ahmedabad Bench in the case as discussed above was also upheld by the Hon'ble Gujarat High Court in the case of PCIT vs. Bharti Somchad Shah in Tax Appeal No.1023 of 2017, wherein it was held as under: 1. The appellant-revenue in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) has challenged the order dated 21.10,2016 made by the Income Tax Appellate Tribunal, Ahmedabad Bench B in ITA No.926/And/2015 for assessment year 2008-09, by proposing the following questions stated to be substantial questions of law: [A] Whether the Appellate Tribunal Is correct in law and on facts in not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence respectfully following the same, appeal of the assessee is allowed. 12. In the result, appeal filed by the assessee is allowed. Coming to ITA No. 2132/Ahd/2018 an appeal by the assessee Shri Alpesh P Kanugo (HUF) 13. The assessee has raised following grounds of appeal 1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer of making an addition, being disallowance of claim of exempted long term capital gain on sale of shares of Ms. Shree Shaleen Textiles Ltd. (SHRSH TEX) and treating it as unexplained credits u/s. 68 of the Act. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs. 31,49,128/- on account of disallowance of the claim of exempted long term capital gain on sale of shares of M/s. Shree Shaleen Textiles Ltd. (SHRSHTA TEX) and treating it as unexplained credits u/s. 68 of the Act. 2. It is therefore prayed that the above addition made by assessing Officer and confirmed by learned Commissioner of Income-tax ..... 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