TMI Blog2024 (2) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... r exit providers. We can only presume that the assessee is one of the beneficiary in this transactions merely an investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. Thus grounds raised by the assessee allowed. - SHRI ABY T VARKEY, HON'BLE JUDICIAL MEMBER And SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER For the Appellant : Shashank A. Mehta For the Respondent : Ashok Kumar Ambastha ORDER S. RIFAUR RAHMAN, MEMBER (A) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals)-3, Thane, Mumbai [hereinafter in short Ld. CIT(A) ] dated 12.03.2019 for the A.Y. 2014-15. 2. Brief facts of the case are, assessee filed its return of income on 29.09.2014 declaring total income of Rs. 18,88,000/-. In the return of income assessee has indicated income under the head Salary is at Rs. 4,77,500/-, House property income is at Rs. 1,08,780/- and Profits and gains from Business or Profession is Rs. 3,39,197/-. After availing deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income for A.Y. 2014-15 online on 01/08/2018. Thereafter, notices u/s 143(2) and 142(1) of the Act along with questionnaire was issued on 26/09/2018 and served upon the assessee. 7. In response, Authorized Representative of the assessee attended and furnished the relevant details as called for viz. note on business activity, computation of income, Balance sheet, details of Agricultural income with supporting. Form 16 in support of Salary received, details of bank accounts with statement/s, detailed note on sale of shares sold during the year under consideration. The contents of the note filed by the A.R. is reproduced below: - 07/06/2012 Cheque No. 848033 drawn at SBI Badlapur from saving Account which issued to Maxgain Advisory Pvt. Ltd. for 2000 Equity shares of Rs. 10/- each of Transcend Commerce Ltd for Rs.2,00,000/- which was credited in our saving Account No. 10464808493. Company has issued 2000 shares of Transcend Commerce Ltd credited to our current account dt. 15/06/2012 of Dalal Broacha Stock Broking Pvt Ltd. On 14/10/2013 Amalgamation scheme put 222 shares for every 100 shares held of Transcend Commerce Ltd amalgamated with SRK Industries Ltd tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88,800 Amount received Rs.1,53,23,114/- 10. Assessing Officer further observed that during the year the assessee apart from SRK Industries has sold just 256 shares of 4 different companies. It is also noticed that the assessee has nominal share holding in different companies. The assessee had bought huge quantity of shares of Transcend at a very nominal price which later were sold at exorbitant price when the transcend was merged and amalgamated with SRK Industries Ltd and that too with a short span of just one year. Assessing Officer recorded the statement of the assessee on oath to ascertain the veracity of facts findings related with bogus capital gains and the same is reproduced at Page No. 21 to 26 of the assessment order. For the sake of brevity, it is not reproduced. 11. Further, Assessing Officer observed that statement recorded clearly reveals that assessee has no knowledge of share market he even has no knowledge about broker through whom he has invested in the said shares. It is also a fact that assessee has not entered into share transactions before not able to answer the questions related with capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 545-547 made a reference to the test of human probabilities in the following fact situation:- ...It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favor then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents... 20. The Hon'ble Supreme Court, in the case of Chuhar Mal V CIT (1988) 172 ITR 250, highlighted the fact that the principle of evidence law are not to be ignored b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CO 22. Reliance is also place on the decision of the Hon'ble Supreme Court in the case of CIT vs. P. Mohankala (15/05/2007) wherein the SC held that The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessees; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression the assessee offers no explanation means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... often took judicial notice of certain facts which need not be proved before them. The plain reading of section 142 and 143 clearly suggests that the assessing officer may also act on the material gathered by him. The word 'material clearly shows that the assessing officer is not fettered by the technical rules of evidence and the like, and that he may act on material which may not strictly speaking be accepted evidence in court of law. 25. In another case of Usha Chandresh Shah vs. ITO (ITA No. 6858/ Mum/ 2011) the Hon'ble ITAT Mumbai upheld the findings of the AO who concluded that the assessee has adopted the methodology of acquiring the Long Term Capital Gains in order to convert her black money in to white and by applying the principle of human probabilities added the share sale receipts as other income of the assessee from unexplained cash credits u/s 68. Similar findings were made by the ITAT in the case of Arvind M Kariya vs. ACIT (ITA NO. 7024/Mum/2010). Reliance is also placed in the case of Somnath Mani vs. ITO (100 TTJ 917) wherein the Chandigarh bench of ITAT held that if facts and circumstances so warrant that it does not accord with the test of human pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om share was purchase is a entry operator and controlled by a group of entry operator. Therefore, generation of LTCG through the process from purchase to receipt of cheque is totally arranged and actually no capital gain arose, but assessee's own case has been routed through different entities and ultimately reached to his hand by cheque in the disguise of sale proceeds of listed security. Accordingly, the claim of assessee u/s 10(38) of the Act claiming capital gain is exempt from taxation denied and assessed as unexplained cash credit u/s 68 of the IT Act 1961. 29. In view of the above discussion, facts of the case and material available on record, Rs. 1,53,23,114/- long term capital gains claimed as exempt by the assessee u/s 10(38) of the Act is hereby denied and assessed as unexplained cash credit u/s 68 of the Act. Penal Proceedings u/s 271(1)(c) are initiated separately for concealing particulars of income. 13. By relying on the decision of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (214 ITR 801), CIT v. Durga Prasad More [1971] 82 ITR 540], Assessing Officer made the addition under section 68 of the Act of Rs.1,53,23,114/-; under section 69C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- i) The share is a penny stock, purchased at a low price, which is over the period of time ramped up by the operators acting in benami names or name lenders. The purchases are off market purchases, and not reported on the stock exchange. ii) The purchases are in the physical form, and dematerialized only subsequently; generally long after the purchase date. iii) The Company is a penny stock company with no credentials, and the sale rates artificially hiked, with no real buyers, so that the inference of the sales being bogus, is unmistakable. 5.7. Even in the appellate proceedings, the AR of the appellant has only explained what was explained before the AO and has also not rebutted the findings made by the Directorate of Income-Tax (Investigation) Kolkata. The scrip in which investment was made by the appellant is admittedly a penny stock and the said stock by its very nature and functioning is mysterious. Normally, in the share market an investment is always made only in good stock and the good stock is identified in the market where it has sound fundamentals with a good target record of giving dividend over a period of time. The share in questions defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as briefly discussed as under:- 1. Sanjay Bimaichand Jain L/H Shantidevi Bimalchand Jain vs. PCIT (ITA NO.18/2017 Bombay High Court (Nagpur Bench) The assessee had purchased shares of two penny stocks of Kolkata based companies i.e. 8000 shares at the rate of 5.50 per share on 08.08.2003 and 4000 shares at the rate of 4/- per share on 05.08.2003. The assessee sold 2200 shares at an exorbitant rate of 486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of 485.65. the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth 5/- had jumped to 485/- in no time. Addition confirmed ii) Chandan Gupta vs. CIT [2015] 54 taxmann.com (P H) Hon'ble Punjab Haryana High Court held that where assessee could not Explain receipt of alleged share transactions profits credited in his bank accounts, then sale proceeds had to be added as income of assessee under section 68 iii) Balbir Chand Maini vs. CIT [2011]12 taxmann.com 276 (P H) Section 69 of the Income-tax Act, 1961-Unexplained investments- Assessment year 1998-99-During assessment proceedings, Assessing Officer found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash receipts' vi) Win Chadha-vs.- CIT (International Taxation) ITA No.3088 3107/Del/2005, the Hon'ble Delhi ITAT, B -Bench has observed, on 31.12.2010 as under: The tax liability in the cases of suspicious transactions is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, and preponderance of probabilities and nature of incriminating information/evidence available with AO. vii) Recently, the Hon'ble ITAT 'A' Bench, Chennai in the following cases reported in ITA No.1413/1414/1415/1416/1417/1418/1419/ 1420/, order dated 06.12.2018 has decided in favour of the revenue treating the p and sale penny stock as sham transaction and thereby the claim of exemption u/s.10(38) of the Act, with respect to the LTCG earned by the assessee on those transactions were denied and the same was treated as unexplained cash credit u/s.68 of the Act. 5.12 The appellant has relied on several case laws as well as by the assessing officer. In this case, the issue is not of the application of any particular case law. The legal propositions being well settled, each case rests on its own facts and the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant:- The acquisition of the aforesaid scrip was not for investment, but basically to the sale the shares at a huge profit margin. The appellant has acquired the shares neither to earn dividend income nor bonus shares etc but could make use of it only by selling. C) Appellant's Intention:- The intention was to sell the shares at the first suitable opportunity of profit, that is why, the appellant sold the shares at its peak. The appellant had sold the shares not because that the appellant require financial resources out of compulsion, but sold at first suitable time at maximum profit. 7.2 In this regard, Reliance is placed on the recent decision of the Hon'ble Bombay High Court in the case of Shri. Sanjay Bimalchand Jain L/H of Shantidevi Bimalchand Jain vs. the Pr. Commissioner of Income Tax-1, Nagpur another reported in (2018) 89 taxmann.com 196(Bombay) order dated 10.04.2017 wherein it has held that whether, on facts, assessee had indulged in a dubious share transaction meant to account for undisclosed income in grab of long term capital gain, thus, exemption under section 10(38) could not be granted to assessee- Held, yes- Whether transaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44400 shares and again on 15/10/2013 converted 44400 shares into 88000 shares as face value reduced from Rs. 10/- to Rs. 5/- The Appellant has furnished following documents to the AO in support of purchase of shares of Transcend Commerce Ltd during the assessment proceedings: Copies of Bills issued by the brokers Maxgain Advisory Pvt Ltd. showing purchase of 20000 shares. Copy of Demat Account in the name of the Appellant issued by the DP Dalal and Broacha Stock Broking Pvt Ltd registered with NSDL showing holding of shares in 15/06/2012 to 14/10/2013. Copy of bank statement showing payments for purchase of shares made to the Maxgain Advisory Pvt Ltd. iii. Sale of Shares of SRK Industries Ltd (SRK) too has been proved beyond doubt by the Appellant by providing documentary evidences which have not been disproved by AO at any stage during assessment proceedings or in the assessment order. The Appellant has sold all the shares of SRK Industries Ltd on various occasions during the year under appeal on the transparent trading platform of Bombay Stock Exchange and has furnished (a) Share Broker's contract notes issued by LFC Securities Pvt Ltd (reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine. 19. In this regard, Ld.AR of the assessee relied on the following case law: - Hon'ble Bombay High Court in the case of Shyam R. Pawar (229 Taxman 256) Hon'ble Bombay High Court in the case of CIT vs. Jamnadevi Agrawal 328 ITR 656 (Bombay) CIT v. Mukesh Ratilal Marolia (IT Appeal No. 456 (Bom.) of 2007, dated 7-9- 2011 II. Decisions wherein the scrip of 'M/s. SRK Industries Limited' was involved and the Hon'ble Tribunals have deleted the addition made: Shri Rakesh Shantilal Shah vs. Ito [ITA 1775/Mum/2019] (copy enclosed) Smt. Geeta Khare vs. ACIT (ITA 4267/Mum/2018) (copy enclosed) Shri Narendra Kumar Saraogi vs. DCIT | ITA 46 47/ Kol/2018](copy enclosed Aditya Vikram Sureka HUF vs. I.T.O [ITA No. 1650/Kol/2018](copy enclosed) Shree Shreyans Chopra vs. ACIT [ITA 661/Kol/2018](copy enclosed) Smt. Amrita Baid vs. I.T.O. [ITA No. 2477/Kol/2017) Smt. Snehlata Chopra vs. 1.T.O. [ITA No. 1386/Kol/2018] Smt. Pushpa Devi Chopra vs. I.T.O. [ITA No. 1388/Kol/2018) Smt. Sampat Devi Chopr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961? 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ( RFL ) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ( STT ) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL . 3. Therefore we find nothing perverse in the order of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties 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 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 aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 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 probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the entries of purchase and sale of these shares etc. We further note that the AO has not found any defect in the documents submitted by the assessee, however, primarily relied on the report of investigation wing, Kolkata that the scrip is part of penny stocks and therefore are of bogus in nature. In our opinion, the order of Ld. CIT(A) upholding the order of AO is not correct as the conclusion is merely based on the suspicious without bringing on record any concrete evidences to the contrary. As the long term capital gain which was earned through recognized stock exchange and is evidenced by the documentary evidences and mere fact that the scrip price has risen many times cannot be sole factor for treating the same as bogus. We also note that the co-ordinate Bench of the Tribunal in the above two cases namely Smt. Geeta Khare vs. ACIT (supra) and Smt. Bhavna B. Kothari vs. ITO (supra), the scrip involved was M/s. S.R.K. Industries Ltd. and the co-ordinate Bench of the Tribunal has held the long term capital gain to be genuine and not bogus. The operative part in the case of Smt. Geeta Khare vs. ACIT (supra) is extracted below: 7. We have heard the rival submissions. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AO. 7.5. We find that the ld AO had observed that the assessee had traded only in the shares of SRK Industries Ltd. This is factually incorrect statement of the ld AO. Moreover, the ld AO had during the course of examination of the assessee on oath u/s 131 of the Act had even posed a question vide Question No. 24 that assessee had purchased very few shares of well reputed companies during the year like Indus Ind Bank, Crompton Greaves, Larsen and Toubro etc. We find that the ld AO in para 13.4 of his order had observed that on examination of Shri Shivajirao Jondhale on oath u/s 131 of the Act, it was noticed that he had also invested in the shares of SRK Industries Ltd only based on an advice of his friend. Based on this, the ld AO had concluded that the whole basis of purchase of this share is a preknowledge of rigging of price and subsequently taking accommodation entry for Long term capital gains. We find from the demat statements for the period 1.4.2012 to 31.3.2013 and 1.4.2013 to 31.3.2014, the assessee had dealt in various reputed scrips and had duly dematted the same and all these transactions are duly reflected in the demat statements issued by the depository pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is Long Term Capital Gain from sale of shares and hence exempt from income tax. The scrips in question were the subject matter of adjudication before this Tribunal. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the case, decided the issue in favour of the assessee. We list some of these decisions:- Shri Gautam Kumar Pincha vs. ITO, ITA No. 569/Kol/2017, dt. 15/11/2017 ITO vs. Shri Shaleen khemani, ITA No. 1945/Kol/2014, dt. 18/10/2017 Mahendra Kumar Baid vs. ACIT, Circle-35; ITA No. 1237/Kol/2017; order dt.18/08/2017 Kiran Kothari HUF vs. ITO, ITA No. 443/kol/2017, order dt. 15/11/2017 The Hon'ble Jurisdictional High Court had in the following cases, upheld the claim of the assessee:- CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC) dt.08/05/2017 CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6. Similarly, the sale of the said shaers for Rs. 1,41,08,484/- through two Brokers namely, M/s. Richmond Securities Pvt Ltd and M/s. Scorpio Management Consultants Pvt Ltd cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assesse nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s. Richmand Securities Pvt Ltd regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s. Richmand Securities Pvt Ltd held that the sale tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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