TMI Blog2023 (11) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... that the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected. We are in complete agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of purchase and sale of shares on the stock exchange have not been refuted by any adverse findings or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below. As assessee has discharged the necessary onus cast on him in terms of claim of exemption of long term capital gains u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the gains so arising on sale of shares therefore has been rightly claimed as exempt u/s 10(38) - Decided in favour of assessee. - Shri Waseem Ahmed, Accountant Member And Shri Tr Senthil Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand the Ld AO while denying the exempted Capital of Rs. 95,43,251/- (Rs. 99,43,251 Rs. - 4,00,000) U/s 10(38) allowed the purchase cost of Rs. 4,00,000/-. Hence the order passed by the Ld AO is based on arbitrary and on surmises and based on the statement of the third party only. (4) That the Ld A. O / CIT(A) Provisions of sections 68 of IT. Act in terms had no application to the facts of Appellant's case. (5) Your appellant most humbly reserves the right to add, amend, alter or substitute the ground in this appeal on or before the time of hearing. 3. The only effective issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of claim of exempted long term capital gain on sale of shares by holding the same as bogus. 4. The facts in brief are that the assessee is an individual and declared income from shares trading/ partnership firm. The assessee during the year claimed exemption of long-term capital gain of Rs. 95,43,251/- on sale of shares of M/s Sunrise Asian Ltd. The brief history is that the assessee in a private placement applied for 20000 shares of M/s Santoshima Tradelink Ltd @ 20 per share on 19th September 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sian Ltd was abnormally increased manifold in the year under consideration without any basis and after peak period rapidly decreased. Before the peak period, there were very low transactions, and the price was systematically increased. Thereafter, a huge number of transactions were carried out in the impugned script. The AO further found that the modus operandi explained by the entry provider/broker/sub-broker regarding the script of Sunrise Asian Ltd are identical to the transaction entered by the assessee. The AO also doubted the acquisition of shares by the assessee. As such, the AO found that the assessee failed to explain how she got the shares of Conart Trader Ltd when she applied for the shares of M/s Santoshima Tradelink Ltd. Thus, the AO considering the finding of DDIT Kolkata and modus operandi of the assessee as well considering the principle of human probability, surrounding circumstantial evidence held the long- term capital gain earned by the assessee as bogus and disallowed the same. 6. On appeal preferred by the Assessee, the learned CIT(A) also confirmed the finding of the AO. The relevant observation of the learned CIT(A) is extracted as under: 20. I have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases of such shares. 21. The appellant did not submit copies of the documents to substantiate the genuineness of transactions related to purchase and subsequent sale of shares, leading to long-term capital gain, claimed by the appellant. I find that those documents were placed before A.O, who after detailed examination and discussion and going beyond these documents, established that these documents are mere masks to hide the real nature of transactions. These shares are transferred to the beneficiary at a very nominal price mostly offline transaction, through preferential allotment. All these are done on commission basis and beneficiaries get accommodation entries for LTCG, which was claimed exempt. 21. The findings have been corroborative with the results of investigation carried out by the Directorate of Investigation, only proves that such documentary evidences have been created as masks to cover up the true nature of transaction. Here it is pertinent to mention here that no independent enquiry by the AO was necessary as alleged by the AO as complete enquires done by Investigation Wing were duly analyzed by the AO, who acted independently to scrutinize the details and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant has failed to discharge its burden of proof and the AO, on the other hand, has proved that the claim of the appellant was incorrect. The enquiry conducted by the investigation carried out by the Directorate of Investigation, Kolkata, which has been thoroughly analyzed based on survey u/s 133A on Q3.03.2015 and statement on oath of Mr. Anuj Agarwal of M/s Korps Securities Ltd. to prove that the appellant has introduced bogus LTCG in his bank account by routing its unaccounted income through a tax evasion scheme involving shares of M/s Sunrise Asian Ltd. Reliance is placed upon the decision of Hon'ble Delhi ITAT in the case of Nokia India Pvt. Ltd. vs. DCIT (2015) 59 taxmann.com 212 (Delhi). It has been held by the Hon'ble Bench in the said case that statements were duly provided to assessee during proceedings before Assessing Officer, however, assessee never asked for cross-examination, hence this plea of cross examination raised at such a later stage of proceedings was not justified. Further reliance is placed on the decisions of Hon'ble Supreme Court in the case of ITO vs. M.Pirai Choodi (2012) 20 taxmann.com 733 (SC)/ (2011) 334 ITR 262 and M/s Peb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry operators throughout the country and the statement of the above persons, are only a testimony to that out of many individuals involved in the process of giving accommodation entries. Moreover, the Investigation Wing of the Department through surveys, search and seizure operations has unearthed a huge scandal of bogus long term capital gain through BSE listed penny stocks involving number of share brokers, entry operators and their paper companies/ firms and the beneficiaries who has brought their unaccounted cash to the books of accounts by way of bogus long term capital gain through way of bogus lor investment in the penny stock like Sun Asian. From the nature of investment and gain earned by the appellant within a very short span of time from investing the scrip of Sun Asian by resorting to dubious method of purchases, as described herein above, unambiguously proved the involvement of some brokers/ entry operators as admitted in their statement recorded of Shri Anuj Agarwal of M/s Korps Securities Ltd. As discussed above, this person is only a tip of huge iceberg in the wide net work of providing accommodation entry through various penny stocks. In view of the above, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order and legal precedents as discussed above, I am of the view that documents submitted as evidences to prove the genuineness of transaction are themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed that purchase and sale of shares are arranged transactions merely giving a colour of authenticity by creating a fa ade of transactions to create bogus profit in the garb of LTCG by well-organized network of entry providers with the sole motive to sell such entries to enable the beneficiary to account for the undisclosed income for a consideration or commission. It is relevant to mention here that the prices have increased many fold times as soon as the period of one year has expired so as to avail the benefit of exempt long term gain. There is no justifiable indicator such as some significant business transaction in the case of M / s Sunrise Asian Ltd. to substantiate such abnormal rise in its scrips. The onus was on the appellant to explain the source and nature of the amount credited in his bank account on this account. The appellant, however, could not discharge the onus as the expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. We have considered the rival submissions as well as the relevant material on record. The AO has doubted the transactions of purchase and sale of shares by the assessee of M/s. Sunrise Asian Ltd based on the investigation carried out by the Investigation Wing, Kolkata wherein certain persons were found indulged in providing accommodation entries, inter-alia bogus Long Term Capital Gains which is claimed as exempt under section 10(38) of the Act by the beneficiaries in order to facilitate the beneficiaries to convert their black money into white without paying Income-tax. The AO has narrated the modus operandi of various entry providers which is a general statement so far as the indulgence of certain persons in providing the accommodation entry of bogus long term capital gains as well as other transactions. However, in the said narration of modus operandi, there is nothing against the particular transaction of purchase and sale of shares by the assessee. The AO has specifically mentioned that during the course of enquiry in certain cases it has come to light that large scale manipulation has been done in the market price of shares of certain companies listed on Stock Exchange by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of Hon ble jurisdictional High Court in case of CIT vs A.L Lalpuria Construction (P) Ltd (supra) and the decision of the Hon ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra), the assessment based on statement of third party without giving an opportunity to the assessee is not sustainable in law. The Hon ble Supreme Court in case of Andaman Timber (Supra) while dealing with the issue has held in para 5 to 8 as under:- *********************************** 14. Therefore, the statement of a third party cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. Even on perusal of such statement of Shri Shri Vipul Vidur Bhatt, we find that it is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. The AO has either discussed the modus operandi of entry providers and their statements but has not made any reference of any material or documentary evidence which reveals that the assessee has indulged in availing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding of the shares by the assessee cannot be disputed. The AO has treated the transaction of sale of 158400 shares as bogus being accommodation entry but has not doubted the holding of these shares in the Demat account of the assessee. Once the assessee has produced all the supporting evidences which include allotment advice, bank statement showing the payment of purchase consideration, Demat account showing holding of shares in the Demat account, sale of the shares through Stock Exchange which are also reflected in the Demat account of the assessee and receipt of the sale consideration in the bank account of the assessee as it is evident from the bank account statement of the assessee, then 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 the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the bank account of the assessee. The AO also observed that since the return for the asst. yr. 2000-01 relevant to the year of purchase, was filed after the date of sale and that purchase of shares was not done through the bank account of the assessee, the actual event of purchase of the shares of assessee could not be verified and, therefore, it was apparently an afterthought and a modus operandi adopted to convert the undisclosed income into 'capital gain'. The director of the company was also summoned, but no such person was found available at the address of the company obtained from Guwahati Stock Exchange and no company by name of Birdhichand Pannalal Agency was in existence at the said given address. The share broker was also examined under section 131 and in course of examination, he stated that all records of purchase and sale of shares were lost and thus, the actual purchase and sale of shares could not be verified. The AO, therefore, treated the 'capital gain' as bogus and disallowed the long-term 'capital gain', sought to be exempted under s. 54 of the Act, to the tune of Rs. 15,33,160 and added back the same as income from undisclosed source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, 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. Similar in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company by way of private placement of face value of Rs 10/- at a premium of Rs 10/- on payment of consideration by cheque and therefore, it is not a case of payment of consideration in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in case of Vijayrattan Balkrishan Mittal vs. DCIT [2020] 121 taxmann.com 100 (Mumbai Trib) has again discussed this issue in threadbare in para 7 to 37 as under:- *************** 22. In the aforesaid decision, it has been held that it is SEBI who monitors and regulates the stock exchanges stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the ld. AO has referred to SEBI enquiry against M/s Sunrise Asian Ltd. However, we note that the said enquiry was regarding failure to comply with certain disclosure requirements and therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain and has no bearing in judging the genuineness of the transaction undertaken by the assessee or for that matter, the price and realization on sale of shares so undertaken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee s claim of exemption under section 10(38) of the Act and the relevant findings of the Coordinate Bench contained at Para 8 read as under:- **************** 25. In light of above discussions and in the entirety of facts and circumstances of the case and following the decisions of the Hon ble jurisdictional High Court and of that of the Coordinate Benches in cases referred supra, we are of the considered view that the assessee has discharged the necessary onus cast on him in terms of claim of exemption of long term capital gains u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the gains so arising on sale of shares therefore has been rightly claimed as exempt u/s 10(38) of the Act. Accordingly, in the facts and circumstances of the case, we set-aside the order of the ld. CIT(Appeals) and the claim of the assessee u/s 10(38) is allowed. The matter is thus decided in favour of the assessee and against the Revenue. In the result, the ground of appeal so taken by the assessee is allowed. 10.1 The above finding of the Jaipur ITAT has also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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