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2025 (5) TMI 1170

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....ing due taxes on the income. Assessing Officer observed that during the year under consideration, the assessee has sold shares of Global Capital Markets Ltd. and declared the income from sale of shares under the head "Long Term Capital Gain from transactions on which STT is paid" i.e. exempt income u/s 10 (38) of the Income-tax Act, 1961 (for short (the Act'). He observed that as per information, the company i.e. global Capital Markets Ltd. fits into the pattern of a penny stock company. Assessing Officer after recording the reason and taking the prior approval issued notice u/s 148. In response, the assessee e-filed its return of income for AY 2011-12 on 05.05.2018 declaring total income at Rs. 4,52,000/-. Further, Assessing Officer issued notices u/s 143(2) of the Act and provided the copy of reasons recorded to the assessee. In response, assessee raised various objections against the reasons recorded vide letter dated 02.11.2018 and the Assessing Officer disposed off the objections raised by the assessee vide order dated 01.11.2018. 3. Assessing Officer further asked for details and documentary evidences regarding LTCG vide notice u/s 142(1) dated 26.10.2018. In response, the a....

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....ions, ld. CIT (A) sustained the addition made by the AO. 7. Aggrieved, assessee is in appeal before us raising following grounds of appeal :- "1. That on the facts and circumstances of the case and in law, the impugned order passed by the Assessing Officer (" AO") u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 ("the Act") and upheld by the Ld. National Faceless Appeal Centre Delhi ("NFAC") determining the assessed income at Rs. 21,77,000/- is arbitrary, bad in law and liable to be quashed. 2. That on the facts and circumstances of the case and in law, the AO has solely relied upon the information received from the DDIT(Inv.), Unit-6(3), New Delhi without any independent application of mind resulting in borrowed satisfaction contrary to settled law and therefore rendering the impugned proceedings u/s 147 r.w.s 143(3) of the Act null and void on account of patent jurisdictional error. 3. That on the facts and circumstances of the case and in law, the Principal Commissioner of Income Tax/ specified authority failed to adhere to the provisions of Section 151 of the Act and proceeded in a mechanical manner thereby rendering the impugned proceedings u/s 143 r.w.s 147 of the Act ....

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....tures and surmises contrary to settled law that suspicion cannot take place of proof making the impugned additions unwarranted and liable to be quashed. 12. That on the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings u/s 271(1)(c) r.w.s 274 of the Act despite non-satisfaction of mandatory statutory ingredients and the legal unsustainability of the impugned addition." 8 At the time of hearing, ld. AR for the assessee submitted detailed written submissions, which is reproduced below for the sake of brevity :- "A. Statutory ingredients of Section 68 not satisfied-Absence of jurisdictional facts; 10. It is submitted to lawfully impose the impugned addition u/s. 68 of the Act, the statutory ingredients thereunder must be satisfied, provided as follows: "Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous y....

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....f the record, it is easily discernible that in the instant case, the AD 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 AD that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre- planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and A....

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....on, 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." (Emphasis Supplied) 14. That it is also an undisputed fact that no such books were (required to be) maintained by the Appellant and that in absence of such jurisdictional requirement, this Hon'ble Tribunal in the case of Babbal Bhatia v. ITO, ITA Nos. 5430 & 5432/DEI/2011, decided on 08.06.2018 has held in the Assessee's favor while relying on the judgment of the Hon'ble Delhi High Court in the case of CIT v. Ms. Mayawati 338 ITR 563 [DEL], that where books of accounts are not maintained by the Assesse....

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....o attribution of vicarious liability against a party for the allegations against some other third party unless expressly provided in law vide Religare Finvest Ltd. v. State (NCT of Delhi), (2024) 1 Hon'ble Supreme Court 797 (Para 16 & Para 37) and Sunil Bharti Mittal v Central Bureau of Investigation (2015) 4 see 609 (Para 45). C. Impugned additions non-est and perverse as Appellant is a bonafide investor, entire transactions done via banking channel, de-mat account and through recognized stock exchange 20. That the Appellant had duly produced all documentary evidence before the Ld. AO regarding the source of investment, the evidence of purchase and sale of shares that establish the bona fide nature of the transactions. It is submitted that the Ld. AO mechanically and without any basis, rejected the documentary evidence furnished by the Appellant. 21. In this regard, reliance is placed on the case of PCIT v. Parasben Kasturchand Kochar (2021) 130 taxmann.com 176 (Guj.)(HC) wherein it has been held by the Hon'ble Gujarat High Court that the Assessee has duly discharged its onus to prove the genuineness of the transaction by furnishing all the relevant documentary evide....

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....hna 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 ("SIT") 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 Tribunal." (Emphasis Supplied) Similarly, decision has also been held by the Hon'ble Delhi ITAT in favour of the Assessee in the case of Meenu Gael v. ITO [ITA No. 6235/Del/2017] as under: "All the transaction were made through account payee cheque / banking channel and assessee had purchased share in financial year 2009-10 and sold the same in the financial year 2013-14 resulting in Long Term Capital Gain. The assessee has submitted various documentary evidences to prove the genuineness of the transaction of sale and purchase of shares which includes a copy of purchase bill dated 22.02.2010; a copy of share transfer form in the favour o....

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....is submitted that not an iota of material/ evidence against the Appellant is cited in the impugned order. 25. That the impugned order is ex-facie erroneous and untenable insofar as there is no information available with the Respondent-Assessing Officer, apart from unsubstantiated suspicion and conjectures in direct contravention to settled law vide Transworld International Inc. v. Joint: Commissioner of Income tax, 2004 SCC OnLine Del 729. 26. It is further submitted that "reason to suspect" does not satisfy the jurisdictional threshold of "reason to believe" (to lawfully initiate proceedings under Section 147/148 of the Act) vide Synfonia Tradelinks Pvt. Ltd. v. Income Tax Officer, Ward-22 (4) in W.P.(C) No. 12544/2018 (Delhi). 27. That hence, it is ex-facie established from the established jurisdictional facts on record, since the statutory ingredients of Section 68 are not made out as also the allegation that the Appellant has somehow indulged in taking accommodation entries by booking bogus L TCG as all transactions are made through banking channels and the exemption u/s 10(38) could not have been disallowed despite the fact that the Appellant duly qualifies for the same.....

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....ily 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 the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks....

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....n 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 in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examinin....