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TMI Blog2024 (3) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had claimed Long Term Capital Gain (LTCG) of Rs. 2,05,52,685/- on sale of shares M/s. Shaleen Textile Ltd (hereinafter "M/s. Shaleen Textile"). The AO noted that the Kolkata Investigation Wing had undertaken investigation into 84 penny stocks which identified shares of M/s. Shaleen Textile as a penny stock. The AO took note of the modus operandi of the entry operators involved in facilitating bogus LTCG to beneficiaries like assessee, which according to AO is nothing but converting the black money of the beneficiaries to white. The AO noted that the assessee has purchased in the month of Nov, 2011 shares of M/s. Shaleen Textile and sold in the month of April, 2013 to Sep, 2013 and claimed LTCG of more than of Rs. 2 cr which is unbelievable. According to the AO, the assessee on 8.11.2011 purchased 10,000 shares of M/s. Shaleen Textile at an average price of Rs. 48.78/-; and on 23.04.2012 number of shares i.e. 10,000 were split into 1:19 Thus, total number of shares was 200000. Further on 07-03-2013 sub division of the shares were made from Rs 10/- to Rs 2/-; thus total number of shares was 10,00,000 shares. Thereafter, 3,72,100 shares of M/s. Shaleen Textile were sold betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant and perused the material on record and also the legal position on the issues at hand. 6.1 The appellant was allotted 10,000 shares of Shree Shaleen Textiles Ltd through preferential allotment on 11.01.2012. These shares were purchased at Rs. 205/- per share (Rs. 10/- face value and a premium of 195/-). Subsequently, bonus shares were issued in the ratio of 1:19 on 23.04.2012. After that the shares held by the appellant stood at 2,00,000 shares (10000 lock in balance + 190000 free balance). Thereafter Rs. 10 face value shares were sub-divided into Rs. 2 per share on 13.03.2013, therefore, the number of shares held by the appellant was 10,00,000 shares. 3,72,100 shares were sold by the assessee during the period 30.04.2013 and 30.09.2013 for a consideration of Rs. 2,30,79,975/-. 6.2 In the order passed u/s 143(3) of the Act, the Ld. AO has doubted the genuineness of the transactions made by the Appellant in the scrip of Shree Shaleen textiles Limited based on the following observations: * The financials of Shree Shaleen Textiles Limited were very poor during the period when the preferential shares were allotted. * The business profile shows that the company was not engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame of the appellant in their statements. Further, it is stated that their statements have not been provided to the appellant. 6.6 It is also submitted that the learned Assessing Officer has merely acted upon presumption and has acted against the natural justice towards the appellant. 6.7 The AO has mentioned that funds received in the bank accounts of alleged operators have been transferred to the account of the share brokers which has been ultimately used to purchase shares. However, the AO has not been able to prove any cash trail in the case of the appellant. Merely because certain malicious transactions took place by some other persons in respect of shares held by the appellant does not lead to an automatic inference that the appellant has also sought benefit of such acts. 6.8 It is further submitted by the appellant that the price of scrips depends on many factors, Companies are operating in different segments and sectors which are not possible to be related and the price of the scrips cannot be correlated with one or two such factors. Weak financial should not be the only parameter to suspicious trading of a company on Stock Exchange and as per the statistics 30% of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1.............. 8.0 I also note that the appellant has relied upon the decisions of the jurisdictional ITAT, Mumbai in the cases of Dipesh Ramesh Vardhan vs. DCIT [I.T.A. No.7648/Mum/2019; Vijayrattan Balkrishan Mittal vs. DCIT [ITA No. 3429/Mum/2019; order dated 01.10.2019], CIT vs. Jamnadevi Agrawal Ors. [2010] 328 ITR 656 (Bom), Farrah Marker Vs. ITO (ITA No. 3801/Mum/2011 dated 27.4.2018), Gateway Leasing Pvt. Ltd vs. ACIT [WP No.: 2518 OF 2019; Smt. Kalpana Mukesh Ruia & Ors. vs. DCIT [I.T.A. No. 6519/Mum/2019, Narayan Ramchandra Rathi v. ITO (ITA No. 4811/MUM/2018), Arun S. Tripathi v. PCIT (ITA No. 2560/MUM/2018), and Anraj H. Shah (HUF) v. ITO (ITA No. 4514/MUM/2018), where the issues involved are identical and the hon'ble ITAT has held that the appellant has discharged the burden to prove genuineness of the LTCG earned during the year and accordingly capital gain on sale of shares cannot be doubted. 8.1 ............. 9.0.............. 10. It is seen that the decisions in the cases of DCIT vs. Shri Dilip B. Jiwrajka [ITA 2349/Mum/2021; order dated 29.11.2022] and Mrs. Pratibha S. Mhatre vs. ITPO [ITA 695/Mum/2018; order dated 11.06.2021], involve LTCG is arising o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.03.2013, therefore, the number of shares held by the assessee was 10,00,000 shares. Out of which, assessee sold 3,72,100 shares through BSE during the period 30.04.2013 and 30.09.2013 for a consideration of Rs. 2,30,79,975/- and assessee claimed LTCG/exempt income u/s 10(38) of the Act to the tune of Rs. 2,05,52,685/-. The AO taking note of the claim of LTCG/exemption u/s 10(38) of the Act, called upon the assessee to prove the purchase/sale of the shares, and pursuant to it, the assessee filed the following documents: - a. Copy of share application form. b. Copy of allotment letter c. Copy of bank statement reflecting payment made for purchase of shares along with copy of account payee cheque drawn in favour of M/s Shree Shaleen Textile Limited d. Copy of Report of date-wise sale of Shares of M/s Shree Shaleen Textile Limited e. Copies of contract notes and bills of Motilal Oswal Securities Limited for sale of shares. f. Copies of bank statement reflecting the receipt of the sale consideration on account of sale of shares g. Copy of demat account statement and ledger of broker 5. And it was brought to the notice of AO that the transactions were carried out through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,50,000/- through banking channels. 2. Ten Lakh shares of M/s. Shaleen Textile Ltd were allotted to the assessee by the said company as on 13.03.2013. 3. dematerialized the shares and kept the same in the Demat account. 4. sold the shares through stock exchange platform 5. received the sale consideration through banking channels. 7. Further, the shares have entered and exited the demat account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Further, the AO has not brought on record any material to show that the assessee was part of the group/racket which were involved in the modus-operandi/manipulation of prices of shares. Since the allotment of shares, then holding of shares were proved by demat statement, and later sale of shares after remitting STT through BSE, assessee has discharged the burden to prove the purchase and sale of shares of M/s. Shaleen Textile Ltd. Further it is noted that AO has given the name of 107 exit providers, which entities according to him were not doing any actual business, but were only providing accommodation entries. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the case in hand, have been discussed in the ensuing paragraphs. 10. The Ld. AR had rightly relied upon the judgment of the Hon'ble jurisdictional Bombay High Court in the case of Shyam R. Pawar (229 Taxman 256). In the decided case also, the assessee was purchasing and selling the shares through a broker in Mumbai, for purchase of shares of (i) M/s. Bolton Properties Ltd., (ii) M/s Prime Capital and (iii) M/s. Mantra; and he has transacted through the broker at Calcutta and two operators namely Mr. Sushil Purohit and Shri Jagdish Purohit, and one of them was the Director of M/s. Bolton Properties Ltd. who had purportedly admitted to have manipulated the share price of M/s. Bolton Properties Ltd. Mr. Jagdish also reportedly floated several investment companies which were aggressively used in the entire deal with the broker M/s. Prakash Nahata & Co. According to AO, the shares offloaded by the beneficiaries through M/s. Prakash Nahata & Co., were ultimately purchased by the investment companies controlled by Shri Purohit. The name of the assessee figured during the course of the investigation. The AO noted that these entities/ companies, whose shares were traded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 31-3-1999. After making the investments in the shares, the assessee had a surplus cash balance of Rs. 3,09,000 as on 1-4-1999. Thereafter, the assessee has further returned an agricultural income of Rs. 66,000 for the assessment year 2000-01. The amount invested in the purchase of shares in the year ending on 31-3-2000 was Rs. 2,57,020. Again the assessee had a cash balance thereof of Rs. 1,18,771. Therefore, it is, very clear that the investment made by the assessee in shares during the previous periods relevant to the assessment years 1999-2000 and 2000-01 was supported by cash generated out of agricultural income. The above agricultural income have been considered in the respective assessments. Therefore, the contention of the assessing authority that the assessee had no sufficient resourcefulness to make investments in the shares is unfounded. 10.3 Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the assessing authority that they had dealings with the assessee in respect of the share transactions. They have confirmed the transactions stated by the assessee that he had with them. These positive statements made before the assessing authority supported the case of the assessee. There is no force in the action of the assessing authority in relying on the negative statements of the other parties whose role during the relevant period was either irrelevant or insignificant. Therefore, in the facts and circumstances of the case, it is, our considered view that certain statements relied on by the assessing authority do not dilute the probative value of the statements given by other persons in favour of the assessee confirming the share transactions entered into by the assessee. 10.6 The above circumstances have made out a clear case in support of the book entries reflecting the purchase and sale of shares and ultimately supporting the money received on sale of shares and finally investing the same in the purchase of flat. The chain of transactions entered into by the assessee have been properly accounted, documented and supported by evidences. 10.7 Therefore, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cible argument of the learned counsel that the survey conducted by the department has out and out upheld the contention of the assessee that he had purchased and sold shares. We find that this solitary evidence collected in the course of survey is sufficient to endorse the bona fides of the share transactions made by the assessee." 12. On further appeal, it is noted that the Hon'ble Bombay High Court in their order in ITA No. 456 of 2007 dated 07-09-2011 has affirmed the order of this Tribunal. 13. The Ld. AR of the appellant has rightly relied on another judgment of the Hon'ble Bombay High Court in the case of CIT Vs Jamna Devi Agarwal (328 ITR 656). In the decided case, also the Revenue had disputed the genuineness of the long-term capital gains derived by the assessee on sale of shares of listed companies for similar reasons as cited in the present case. On appeal, the Hon'ble High Court upheld the decision of this Tribunal deleting the additions by observing as under: "12. From the documents produced before us, which were also in the possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assessees on the respective dates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid reasons, we hold that the decision of the Tribunal is based on findings of fact. No substantial question of law arises from the order of the Tribunal. Accordingly, all these appeals are dismissed. No order as to costs." 14. The Ld. AR also brought to our notice the recent judgment rendered by the Hon'ble jurisdictional Bombay High Court in the case of PCIT v. Ziauddin A Siddique (ITA No. 2012 of 2017) dated 04.03.2022 which is found to be relevant in the facts involved in the present case. In the decided case, the issue before the Hon'ble High Court was whether this Tribunal was right in law in deleting the addition made u/s 68 of the ACT in relation to LTCG derived on sale of shares, ignoring the fact that the shares were purchased from off--market sources and that the sharp rise in prices were not supported by financials. Answering the question raised by the Revenue in the negative, the Hon'ble High Court held that there was a finding of fact that the purchase & sale of shares occured on the platform of stock exchang, upon payment of STT and were supported by documentary ecidences and therefore there was no perversity in the order of this Tribunal. The Court further no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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