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TMI Blog2017 (10) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... involved are identical in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience. The facts in the case of Manish Kumar Baid are taken up for adjudication and the dicision rendered thereon would apply with equal force to Mahendra Kumar Baid also, except with variance figures. 2. Thought the assesee had raised several grounds of appeal, the following common issues are involved in both the appeals and the questions raised thereon the reframed as under :- 1. Whether on the facts and circumstances of the case, the Id CIT A was justified in upholding the addition made by the Id AO u/s 68 of the Act in respect of sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee's claim of long term Capital Gains (LTCG) on sale of those shares. 2. Whether on facts and circumstances of the case Id CIT A was justified in upholding the action of the ID AO in treating the transactions in shares of kailash Auto Finance Limited (KAFL) resulting in long Term Capital Gain as bogus and thereupon making addition u/s 69C on the presumption that commission @ 5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities. The Id AO also observed that during the FY 2011.12, CPAL increased its authorized share capital to Rs. 29 crores and them the shares of Rs. 10 each were split into 1:10 i.e. each shares of Rs. 10 into shares of Re. 1 each. The said company CPAL thereafter issued bonus shares to the existing equity shareholders in the ratio of 1:55. The Id AO, considering the weak operating profits of CPAL., suspected the issue of bonus shares in the unrealistic ratio of 1:55. He held that the probable reasons were with a view to provide large amount of LTCG in the hands of beneficiaries after amalgamating the said company with KAFl. 3.3 The Id AO further observed that CPAL was incorporated with a dubious plan and premeditated arrangement and artifice to increase number of shares therein through sham and non genuine transactions of its shares which resulted in fetching exorbitant and unrealistic considerations in the scheme of amalgamation. While arriving at the aforesaid conclusions, the Id AO also doubled the scheme of amalgamation. 3.4 The Id AO referred to the statement of Shri Sunil Dokania recorded u/s 131 of the Act by the Investigation wing on 12.06.2015, wherein, Shri Dokania h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e beneficiaries during the period of July 2013 to November, 2014 (Patch-2) The said orders passed by SEBI contained list of related/connected parities of KAFL and also the list of beneficiaries. Some of these were restrained from accessing the securities market and buying, selling or dealing in securities. The Id AO concluded that the indepth analysis done by SEBI in the three orders is direct evidence against the assessee to hold that the prices of KAFL. Were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL., The Id AO Further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one. 3.7 The Id AO made enquiries from the Bombay Stock Exchange as to the counter party members who bought the shares of KAFL sold by the assessee through his shares broker viz. Ashika Stock Broking Limited. The Id AO found that the buyers of the shares had weak financials and therefore he doubted the genuineness of the transactions. The summons issued to the said parties came back un-served and/or no response was received thereon. The id AO referred to his test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The documentary included the following. (i) Purchase Bill for purchase of 2,40,000 shares of CPAL from M/s Brijdhara mercantile Pvt. Ltd. On 20.12.2011 falling in the previous year relevant to the Assessment Year 2012.13. (ii) Bank Statement showing payment of the purchase consideration of shares of CAPL to Brijdhara. (iii) Balance Sheet of the Assessee for the FY 2011.12 to 2012-13 to show that the investment in the shares of CAPL was duly disclosed. (iv) demat Statement with United Bank of India, a Depository Participant (DP) showing the aforesaid shares of of CPAL in the account of the assesee. (v) The letter dated 8th June. 2013 of KAFL informing the assessee that the CPAL was merged with KAFL by virtue of Court order and the assessee was allited shares of KAFL as against the shares of CPAL in the ratio of 1:1. (vi) The Demat statement of the assessee with United Bank of India showing receipt of Shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of Ashika Stock Broking Ltd. Share broker though whom the assesee sold shares of KAFL in the FY 2013-14 relevant of the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g final Order dated 15th June 2016 referred to in the impugned assessment order. 5.3 The Id AR also brought our attention to the enquiry report made by Pr. Director of Income Tax (Investigation). Kolkata in the matter of transactions of KAFL. The Id AO relied on the statements of different persons including Sri Sunil Kumar dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The Id AR has shown that the list of beneficiaries provided by the these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd. 5.4 The Id AR, on the other hand, relied on the ad interim exparte order dated 29th March, 2016 passed by SEBI in favour of assessee. He drew our attention to Para 24 of the said order wherein SEBI found that some innocent and gullible investors had been lured into the trading of shares of KAFL and had been entrapped in the price fluctuation of the script. This finding of SEBI supports the case of the assesee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious bogus entities. These bogus entries are paid by the unaccounted money of the beneficiaries in cash. As a relult unaccounted income ploughed back in the file of individuals and HUFs in the from the bogus LTCG without paying income tax on it. In process the bogus Short Term Capital loss is also booked by the entitles who wants to reach reduce their Taxability. 5.8 The Id AR submitted that there is not allegation by Shri Sunil Dokania and/or the Id AO that the assessee ever approached Shri Dokania and/or any other person whatsoever, to approach for such bogus LTCG. Therefore the Id AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The Id. AR also referred to the statements of various other persons annexed with the Assessment order to show that one of the said persons names the assessee to have been benefitted by them in respect of LTCG claimed by the assesee. The Id AR submitted that the Id AO was unjustified in drawing an adverse inference against the assessee on the basis of his enquiry unlade from BSE to find out the names of the buyers who ultimately bought the shares sold by the assessee, On the basic of such enquiry, the Id AO prepared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C). The Id AR submitted that the entire case of the revenue hinges upon the presumption that the assessee has ploughed back his own unaccounted money in the from of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the from of LTCG. The Id AR referred the judgement of Special Bench of Mumbai Tribunal in the case of GTC industries Ltd. Vs. ACIT [2017] 164 ITD 1 (Mumbai Trib.) (SB) The Tribunal observed as under. 46. ......Ultimately the entire case of Revenue upon the presumption that assesee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money, It is quite a trade law that suspicion howsoever strong may be but cannot be the basic of addition except for some material evidence on record. The theory of preponderance of probability is applied to weigh the evidences of ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case the Id AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale shares were stage managed. The Hon'ble High Court held that the opinion of the Id AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the Id AO but he miserable failed have been the view expressed by the Id AO but he miserable failed to substantiate that. The High Court held the transaction were at the prevailing pirce and therefore the suspicion of the Id AO was misplaced and not substantiated. (ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 ) (Cal)- In this case the Hon'ble Calcutta High Court held that on the basic of a suspicion howsoever strong it is not possible to record any finding of fact, As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence of record, it is difficult it not impossible, to hold that the transactions of buying or selling of shares ware colorable transactions or were resorted to with ulterior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents showing all payments were received by the assesee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 5.12. The Id AR submitted before us that where the purchase and sale transaction are supported and evidenced by Bills, Contract Notes. Demat statements and bank statements etc., the transactions of purchase of shares were accepted by the Id AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and /or the statements of third parties. In support of the aforesaid submissions, the Id AR in addition to the aforesaid judgements, has referred to and relied on the following case :- (i) Baijnath Agarwal vs. ACIT -[2010] 40 SOT 475 (Agra (tm) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (tm) (iii) ITO vs. Ashok Kumar Banssal- ITA No. 289/Agra /2009 (Agra ITAT) (iv) ACIT vs. Amit Agarwal & Others- ITA Nos. 247(Kol) of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT- IT (SS) A Nos 22-26/Kol/2011 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO -ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO-ITA No. 201 & 502/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and/or broker was a party to the price rigging or manipulation of price in BSE. The Id AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the Id AO was not justified in refusing to allow the benefit under section 10 (38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amta Agarwal & Others - ITA Nos. 2478(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum). 5.15. The Id AR also submitted that the Id AO was not justified in disallowing the assessee's claim of exemption under section 10(38) of the Act by concluding that the trasactions of the assessee resulting in LTCG on sale of shares of KAFL were bogus relying on the statements of various persons recorded by Investigation Wing wherein these persons accepted to have provided accommodation entries of various natures including TCG to different persons. The Id AR submitted that in the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of LTCG on sale of shares of KAFL was not distinguished on facts and/or on law by the Id CIT(A), On the other hand, he assessee's transactions of LTCG were bogus ignoring all legal evidences furnished by the assesseee in support of the genuineness of the transactions resulting in LTCG. The Id AR prayed that the order of the ID CIT (A) be set aside and the exemption under section 10(38) of the Act be allowed to the assessee. 6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the Id AR that the Id AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgment of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (Supra) for this proposition. The various facets of the arguments of the Id AR supra. With regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all. Hence the allegation that the assessee and/or Ashita Stock Broking Ltd. getting involved in price rigging of KAFL shares fails. We also find that even the SEBI'S order heavily relied upon by the Id AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is not evidence against the assessee. Much less to speak of direct evidence. The enquiry by the Investigation wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the from of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the Id to be false or fabrieated. The facts of the case and the evidences in support of the assessee's to be false or fabricated. The facts of the case and the evidences in support of the assessee's case c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the books of accounts examined by him. The Id DR vehemently relied on the orders of the lower authorities and argued that for the year under appeal, the provisions contained in Rule 8D(2) of the Rules are very much applicable and hence the some had been rightly worked out by the Id AO. 8.1. We have considered that rival submissions. We find that the Id AO did not record any satisfaction in terms of section 14a of the Act. We find that the Id AO did not record any satisfaction in terms of section 14A of the Act, We also find that Demat expenses were not claimed by the assessee in the return filed. We hold that the Id AO ought to have recorded primarily his satisfaction as mandated in terms of section 14a(2) of the Act and Rule 8D(1) of the Rules and without resorting to the same, he ought not to have proceeded directly as per Rule 2D(2) of the Rules. Only if the test provided in Rule 8D(1) of the Rules fail, the Id AO is authorized in law to proceed with the computation mechanism provided in Rule 8D(2) of the Rules. In view of this finding and respectfully following the judgement of Hon'ble Calcutta High Court (supra), we hold that the Id AO was not justified in invok ..... X X X X Extracts X X X X X X X X Extracts X X X X
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